US stocks fell on Monday as investors braced themselves for this week’s widely anticipated Federal Reserve meeting and a fresh round of corporate earnings.
Wall Street’s benchmark S&P 500 fell 0.8 per cent in morning trading in New York, while the tech-heavy Nasdaq Composite lost 1.4 per cent.
Both indices finished higher on Friday, registering back-to-back weekly gains for the first time since August, despite companies including Amazon, Facebook owner Meta and Google parent Alphabet disappointing investors with their third-quarter results and forward guidance.
The concerns over corporate America come at a time when market participants are also keeping a keen eye on policy meetings at the Bank of England and the US Federal Reserve this week.
The Fed is forecast to implement its fourth straight 0.75 percentage point rate rise on Wednesday and to signal further increases in an effort to curb rapid price growth even as fears mount that the US could enter recession next year.
The Chicago Business Barometer, which measures corporate activity in the US midwest, fell to 45.2 in October, down from 45.7 in September and below the 47 figure expected by economists polled by Reuters. A figure below 50 indicates a contraction.
A national manufacturing gauge collated by the Institute for Supply Management — which is closely watched as a proxy for the strength of the world’s biggest economy — is released on Tuesday.
The Fed’s preferred inflation metric, the core personal consumption expenditures index, rose 0.5 per cent month on month for September, in line with economists’ expectations and down from 0.6 per cent in August.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said the latest inflation figures meant it was “too early” for the Fed to follow the Bank of Canada or the European Central Bank in issuing “less hawkish signals”.
Investors have also been watching the latest corporate earnings season for signs of strain from high inflation and rising borrowing costs.
Companies listed on the S&P 500 have so far reported year-on-year earnings growth of 2.2 per cent for the third quarter, according to FactSet data, which has taken into account groups that have reported and estimates for those that have not. That would mark the lowest rate of profit expansion since the third quarter of 2020.
The energy sector is reporting earnings growth of 134 per cent, however. Companies including Pfizer, Airbnb and Uber report on Tuesday.
In government bond markets, the yield on the 10-year US Treasury note added 0.04 percentage points to 4.05 per cent as its price fell. The yield on 10-year German Bunds added 0.05 percentage points to 2.1 per cent, while the euro traded below parity with the dollar.
Consumer price inflation in the eurozone rose to a record 10.7 per cent in October, far higher than the 10.2 per cent predicted by economists polled by Reuters and up from 9.9 per cent in September. Gross domestic product rose 0.2 per cent in the euro area in the third quarter from the previous three-month period, figures from Eurostat show.
Agnès Belaisch, managing director and chief European strategist at the Barings Investment Institute, said a period of stagflation — low growth coupled with relatively high inflation — remained her base-case scenario for Europe, despite the better than expected GDP figures.
“Our dark horse scenario, however, is growth remains higher than expected [next year] and demand remains strong, also fuelling inflation, in which case you have central banks needing even more rate hikes,” Belaisch said. “Such an overheating can only end with a hard landing, with central banks basically killing the economy.”
The BoE is also expected to raise borrowing costs by 0.75 percentage points on Thursday, at its first meeting since previous chancellor Kwasi Kwarteng’s disastrous “mini” Budget of unfunded tax cuts.
In equity markets, the regional Stoxx Europe 600 added 0.2 per cent, pulled lower by energy and consumer goods stocks. London’s FTSE 100 added 0.6 per cent, erasing an earlier loss.
In Asia, Japan’s Topix gained 1.6 per cent and South Korea’s Kospi added 1.1 per cent. Hong Kong’s Hang Seng index fell 1.2 per cent, while China’s CSI 300 lost 0.9 per cent.
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