Stocks touched records before paring some gains on Monday, with equities looking to build on gains after the S&P 500’s best month since November 2020.
The S&P 500, Dow and Nasdaq each set record intraday levels just after market open. Investors are heading into November trading with momentum from a record-setting October, when the S&P 500 logged its best monthly gain in nearly a year, powered higher by a combination of estimates-topping corporate profit results. And according to data from LPL Financial, November has marked the best month of the year for stocks over the past 10 years and since 1950.
Fresh catalysts for the markets are due out later this week. Investors in the coming days will be eyeing a slew of new quarterly earnings results for companies from Clorox (CLX) to CVS Health Corp. (CVS), Lyft (LYFT) and Square (SQ), on the back of what has been an already historically strong earnings season.
As of Friday, just over half of all S&P 500 companies had reported actual third-quarter earnings results, and 82% of these topped consensus estimates on profit results, according to data from FactSet. The expected earnings growth rate for the index is more than 36%, which, if maintained, would mark the third-highest profit growth rate for the index since 2010.
Though some of the heavily weighted index components from last week had disappointed against consensus estimates — with both Amazon and Apple shares dropping after posting weaker-than-expected results and guidance — other stronger results helped offset these misses, with names including Alphabet and Microsoft rallying to record levels on the heels of their respective reports.
This week will also include key economic data reports including the October jobs report on Friday, which is expected to show a pick-up in job creation compared to the disappointing pace of hiring shown in each of August and September.
Meanwhile, the Federal Open Market Committee will convene for its next monetary policy-setting meeting. on Tuesday and Wednesday, then release its policy statement and hold a press conference with Federal Reserve Chair Jerome Powell. This meeting is expected to set the stage for an announcement of tapering of the Fed’s crisis-era asset purchase program, which is currently taking place at rate of $120 billion per month in purchases of agency mortgage-backed securities and Treasuries. Amid the improving data tracking the economic recovery, the Fed previously signaled that a tapering announcement would come before year-end, and that the tapering process would continue until the middle of next year.
Given the market has been anticipating the start to tapering for months now, speculation around when the Fed will make a move on interest rates has become a point of particular interest to investors. This week’s FOMC statement and press conference are likely to provide some more color to market participants around how committee members are thinking about the timing for interest-rate hikes, especially given the persistent jump in inflation seen in data including last week’s core personal consumptions expenditures report. That print showed a fourth straight month with core PCE jumping at 3.6% year-over-year rate, or its fastest since 1991.
These still-heightened inflation data, combined with companies’ earnings call anecdotes of higher input prices and labor costs, have led some investors to speculate the Fed might need to move to raise rates more quickly than previously telegraphed to stave off an unchecked and lasting surge in inflation.
Others, however, suggested the Fed might hold off on a move on interest rates until labor market conditions have come closer to pre-pandemic levels.
“Fed funds futures currently price in the first rate hike by September 2022. If realized, that would be much faster than the one-year gap that occurred between the end of the Fed’s asset purchases in December 2014 and its first rate hike in December 2015,” Sam Bullard, Wells Fargo senior economist, wrote in a note. “We think the Fed is unlikely to hike rates by September 2022, given that numerous FOMC policymakers have made clear that the bar for a rate hike is much higher than the bar for tapering asset purchases.”
“At August’s rate of job growth, it would take a little more than two years to recoup 100% of the jobs lost during the pandemic, and even then, the economy would be still several million jobs short of its pre-pandemic trend,” he added. “We still expect the labor market to face a meaningful employment gap for the entirety of 2022. As such, we currently have the first rate hike not occurring until 2023. Obviously the economic situation is fluid and risks to the outlook suggest the rate hike could come sooner than we expect. A very close eye needs to be kept on all incoming data.”
11:18 a.m. ET: ‘We do still see opportunities within equities for investors’: BofA
With the S&P 500 setting yet another record intraday high, some strategists are striking a more cautious tone on the blue-chip index.
“We’re a bit more cautious on the S&P 500 at these levels, we expect more downside than upside through year-end, and we’re looking for sort of a flattish market between now and 2022, just given some of the risks that we’re seeing right now,” Jill Carey Hall, Bank of America U.S. equity strategist and head of U.S. small and mid-cap strategy, told Yahoo Finance Live on Monday.
“We do still see opportunities within equities for investors,” she added. “One of those areas is small caps…we’re projecting based on where valuations are today small caps could actually see mid-to-high single-digit annualized returns over the next decade.”
“The pick-up in capex [capital expenditures] spending by corporations that we’re seeing evidence of this earnings season, that’s typically bullish for smaller, more domestic companies,” she added. “And small caps aren’t as stretched on valuations.”
10:25 a.m. ET: Construction spending slips
U.S. construction spending fell 0.5% in September, reversing an increase of 0.1% in August. The results missed expectations of an increase of 0.4%, compiled by Bloomberg analysts consensus. The drop is activity was attributed to supply shortages and soaring building material prices. Private construction spending fell 0.5%, while single-family spending fell 0.6%.
10:00 a.m. ET: Manufacturing expansion slows
The institute for Supply Management (ISM) said its index of factory activity in the U.S. slipped to a reading of 60.8 in October from 61.1 a month earlier — a 16-month low. The slowdown came amid ongoing supply chain issues across the globe.
“Production was little changed, and the other headline components – supplier delivery times, employment, and inventories – rose modestly. But orders tend to lead, so the headline index likely will dip next month,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, said in an email following the results. “That said, the downturn in China’s PMIs points to downside risk for the ISM over the next few months, though U.S. manufacturing will not slow as much as China’s, which is being hurt by the authorities’ pursuit of zero COVID. At the same time, U.S. manufacturers have seen a bigger demand boost as a result of the outsized fiscal stimulus.”
9:38 a.m. ET: Dow, S&P 500 and Nasdaq rise
Here were the main moves in markets as of 9:38 a.m. ET:
S&P 500 (^GSPC): +7.15 (+0.16%) to 4,612.53
Dow (^DJI): +160.83 (+0.45%) to 35,980.39
Nasdaq (^IXIC): +6.27 (+0.04%) to 15,504.66
Crude (CL=F): +$1.05 (+1.26%) to $84.62 a barrel
Gold (GC=F): +$8.40 (+0.47%) to $1,792.30 per ounce
10-year Treasury (^TNX): +4.3 bps to yield 1.6000%
7:22 a.m. ET Monday: Stock futures point to a higher open
Here’s where markets were trading ahead of the opening bell:
S&P 500 futures (ES=F): +21 points (+0.46%), to 4,618.00
Dow futures (YM=F): +176.00 points (+0.49%), to 35,880.00
Nasdaq futures (NQ=F): +63.5 points (+0.4%) to 15,902.00
Crude (CL=F): +$0.46 (+0.55%) to $84.03 a barrel
Gold (GC=F): +$0.80 (+0.04%) to $1,784.70 per ounce
10-year Treasury (^TNX): +2.6 bps to yield 1.582%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter