Stocks Pullback As Focus Shifts To Fed Rate Decision

2:29 pm Monday, October 31st, 2022

The stock market traded with a more negative disposition on this last day of October after logging big gains this month. Entering today, the Dow Jones Industrial Average was up 14.4% in October and on track for its best month since 1976. Aside from the Dow, the Russell 2000 and S&P Mid Cap 400 are also on pace for double digit gains this month.

A modest rise in Treasury yields is in play for market participants today in addition to some hesitation ahead of the November 1-2 FOMC meeting and rate hike decision. The hesitation is related to Fed Chair Powell’s press conference after the rate hike decision is announced and whether or not his comments will signal a softer approach from the Fed starting at the December meeting.

On a related note, an article in The Wall Street Journal by Nick Timiraos highlighted the risk of the Fed’s terminal rate ultimately being higher than the market expects and staying there for longer due to excess savings and the resilience of consumer spending.

The 10-yr Treasury note yield is up two basis points to 4.04% and the 2-yr note yield is up six basis points to 4.48%.

Fairly broad selling interest has ten of the 11 S&P 500 sectors trading down today. Communication services (-1.6%) and information technology (-1.3%) are the top laggards while energy (+0.2%) is alone is positive territory despite falling oil prices.

Earlier, it was reported that the Biden administration might be considering a windfall tax on energy producers, although a follow up report from the Associated Press suggests that the tax is not likely to pass congress. WTI crude oil futures are down 1.5% to $86.60/bbl.

Mega cap stocks are weighing down index performance. The Vanguard Mega Cap Growth ETF (MGK) is down 1.2% versus a 0.4% loss in the Invesco S&P 500 Equal Weight ETF (RSP) and a 0.7% loss in the S&P 500. Apple (AAPL) shows a decent loss after Reuters reported COVID measures in China could adversely affect iPhone production volume in November at the Foxconn manufacturing facility.

Economic data today was limited to the October Chicago PMI, which came in at 45.2 (Briefing.com consensus 47.1) following the prior reading of 45.7.