By DAMIAN J. TROISE and ALEX VEIGA, AP Business Writers
Stocks closed broadly lower on Wall Street on Monday, a bearish finish for major indexes in an otherwise banner October for the market, including the best month for the Dow Jones Industrial Average since 1976.
The S&P 500, the benchmark for many index funds, posted an 8% gain for the month, its first monthly gain since July. The Nasdaq composite rose 3.9% in October, also marking its first monthly gain in three months. The Dow Jones rose 14% during the month. The Dow only tracks 30 blue chip companies, far fewer than other indices, and can have larger swings than broader indicators like the S&P 500.
A market pullback in August and September, combined with quarterly earnings that beat expectations for many companies, helped spur investors to buy in October. Cautious optimism that the Federal Reserve might be ready to start easing the aggressive pace of interest rate hikes as it tries to crush inflation has also helped.
“It’s probably a combination of us being so deeply oversold, earnings not being as bad as expected, and that kind of recipe setting a recipe for a rebound,” said market strategist Michael Antonelli. at Baird’s.
“Whether or not this rebound holds depends on your view” on whether the Fed is likely to back away from big rate hikes or inflation starts to come down, he added.
On Monday, the S&P 500 slipped 29.08 points, or 0.7%, to close at 3,871.98. The index is now down 18.8% since the start of the year.
The Dow Jones fell 128.85 points, or 0.4%, to 32,732.95, while the Nasdaq fell 114.31 points, or 1%, to 10,988.15. The Russell 2000 Index of small company stocks was little changed at 1,846.86.
Technology and communications stocks were the biggest drag on the broader market. Apple fell 1.5% and parent company Google fell 1.8%.
Stocks gained ground throughout October as investors focused on the latest round of corporate earnings. More than half of S&P 500 companies reported results and posted overall earnings growth of 2.3%, according to FactSet.
So far, companies have provided investors with a mix of earnings and forecasts as Wall Street tries to get a better picture of the economy. Inflation remains stubbornly high and the Federal Reserve has raised interest rates aggressively in an attempt to slow the economy and bring high prices under control. The strategy risks curbing economic growth too hard and plunging the economy into recession.
This week, investors will be watching for another extra-wide interest rate hike from the Fed. He is generally expected to push through another increase that is triple the usual size. According to CME Group, Wall Street is roughly split on whether it will do the same in December or move to a lower increase.
“Markets are eager to see a peak in this year’s aggressive bull cycles, but it would be a mistake to expect central banks to quickly end their fight against inflation,” the analysts wrote. of JPMorgan in a research note.
Any signal from the Fed on Wednesday that it is ready to rein in its rate hike policy will likely trigger a market rally.
“If there’s language that’s dovish, the market is going to absolutely tear it up,” Antonelli said. “But I don’t think that’s going to happen. They can’t afford dovish language with (the consumer price index) above 8%.”
If the Fed signals that it plans to maintain its current pace of rate hikes beyond November, that could lead to a selloff on Wednesday, said Farzin Azarm, managing director of equity trading at Mizuho Americas.
“The market would take it very, very negatively,” Azarm said.
Bond yields have hovered around multi-year highs as the Fed continues to raise interest rates. The two-year Treasury yield, which tends to track expectations for Fed action, rose to 4.48% from 4.42% late Friday.
The 10-year yield, which influences interest rates on mortgages and many other loans, climbed to 4.07% from 4.02% on Friday night.
Inflation has been a global problem. The European Union’s statistics agency, Eurostat, reported on Monday that inflation hit a new high in the 19 countries that use the euro, fueled by runaway natural gas and electricity prices due to of Russia’s war in Ukraine. According to Eurostat, annual inflation reached 10.7% in October.
Investors will be watching the U.S. government’s latest monthly jobs report closely on Friday for any hint of a slowing jobs market as inflation weighs on businesses. Wall Street still has plenty of earnings to review from big companies this week. Pfizer will release its results on Tuesday, followed by CVS on Wednesday. Starbucks reports results Thursday.
Joe McDonald and Matt Ott contributed to this report.
Copyright 2022 The Associated press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.