Dow Jones struggles for direction after 6-day winning streak

What’s driving markets

Traders were adopting a more cautious tone after last week’s plunge in bond yields, on hopes the Federal Reserve was now finished raising interest rates, sparked a 6% jump for the S&P 500 in just six sessions.

“Risk aversion is making a small comeback this morning following the rallies in stocks and FX seen through yesterday. Most of this, we believe, is a bit of reality setting in — yes, yields fell and supported multiples last week, but global growth (and earnings) are set to see slower growth in Q4 as U.S. consumers begin to brake their own spending, and disinflation continues,” said Thierry Wizman, global FX and interest-rates strategist at Macquarie, in a note.

Implied borrowing costs have been the primary driver of U.S. stocks of late. The 10-year Treasury yield
BX:TMUBMUSD10Y,
which hit a 16-year high above 5% late last month, but then briefly fell below 4.5% on Friday after cooling jobs data, is trading back around 4.61%.

The markets are building in four interest rate cuts next year, the first of which has been pushed forward to the May/June time period, said Kent Engelke, chief economic strategist at Capitol Securities Management.

“Numerous Fed officials — including FRB Chair Powell — are slated to speak in the next few days. It is generally assumed these speakers, may ‘push back’ on this emerging narrative that the Fed is done, and the first-rate cut will occur in June,” he said, in a note.

This chimed with comments late Monday from Minneapolis Fed President Neel Kashkari, who said Fed officials have not discussed what it would take to cut interest rates.

Investors were right to be wary about expressing overconfidence that the Fed would soon pivot to a more dovish stance, according to Jim Reid, strategist at Deutsche Bank.

“[T]his is at least the 7th time this cycle where markets have reacted notably in response to dovish speculation. Clearly rates aren’t going to keep going up forever, but on the previous six occasions we saw hopes for near-term rate cuts dashed every time,” said Reid.

The September U.S. trade deficit rose 4.9% to $61.5 billion. Consumer credit data for September is due at 3 p.m. Eastern time.

A number of Fed officials are due to speak throughout the day, including Gov. Christopher Waller talking about the value of economic data at 11 a.m., and New York Fed President John Williams addressing the Economic Club of New York at noon.

A slowdown in job creation in October was welcome news because it brought the labor market into “a more balanced” and sustainable growth, said Chicago Fed President Austan Goolsbee in a television interview.

Companies in focus

• Uber Technologies Inc.
  UBER,
  +1.53%
  topped earnings expectations but came shy of forecasts with its third-quarter revenue. Shares were down 1.4%.

• Shares of Datadog Inc.
  DDOG,
  +29.33%
  jumped 29% after an upbeat earnings forecast. Shares of MongoDB Inc.
  MDB,
  +14.65%
  and Elastic NV
  ESTC,
  +8.07%
  were also rallying as the results eased fears about consumption-based software companies for the latest quarter.

• D.R. Horton Inc.
  DHI,
  +3.41%
  shares rose 3.4% after the home builder’s fiscal fourth-quarter results beat Wall Street analyst estimates for profit and revenue.