U.S. stocks mixed as Fed decision and jobs report loom later in week

What’s driving markets

After Monday’s rally, traders are struggling for a Tuesday repeat so far, and they may be looking past a difficult October with big events on the horizon.

The third-quarter earnings-reporting season rumbles on — and it’s been a rocky start for some companies Tuesday morning.

Companies reporting results before the opening bell rings on Wall Street on Tuesday include Pfizer
PFE,
-1.49%,
Caterpillar
CAT,
-5.79%
and Amgen
AMGN,
-3.81%.

Caterpillar shares are under pressure early Tuesday. Even with a third-quarter profit beat, the maker of construction and mining equipment has a tepid outlook for the fourth quarter. Pfizer shares are also lower after a wider-than-expected loss, although the pharmaceutical maker did reaffirm its full-year outlook.

Other earnings due later Tuesday include Advanced Micro Devices
AMD,
+0.67%,
Paycom Software
PAYC,
+2.11%
and Caesars Entertainment
CZR,
-0.20%.
The widely-watched earnings event is Thursday after the bell, when Apple Inc.
AAPL,
-0.57%
reports its numbers.

Then there’s the ongoing focus on the Treasury market.

The 10-year Treasury yield
BX:TMUBMUSD10Y
came to 4.84% down from 4.87% Monday afternoon.

News on Monday that the U.S. Treasury was planning to borrow less than expected this quarter and would thus have to issue less paper was one factor for bond prices. The Treasury will announce its third-quarter refunding program on Wednesday.

Another factor helping suppress Treasury yields, and therefore possibly helping sentiment in equities, was data showing that manufacturing in China unexpectedly slipped back into contraction in October.

Such signs of a struggling global economy will be part of the Federal Reserve’s calculations as it begins its two-day policy meeting on Tuesday. It is expected to leave its policy interest rates unchanged at a range of 5.25% to 5.5%.

“In the absence of a surprise rate decision, or a surprise forward guidance about a rate decision, what will really, really matter this week … is the U.S. debt situation and the Treasury Department’s quarterly announcement on details regarding the size and the maturity of the bonds that they will issue to borrow that extra $776 billion this quarter,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

Central bankers and investors have more information Tuesday on labor costs for employers. Worker compensation increased 1.1% during the third quarter, higher than the expected 1%. Labor costs have increased at least 1% for nine straight quarters.

In a hard look at the numbers, Cory Stahle, an economist at Indeed Hiring Lab, said wage growth is slowing.

“When workers with more volatile compensation are removed (those paid on commission, for example) the slowing trend is more clear,” he said. “Today’s data is a mixed bag for Federal Reserve policymakers — things are headed in the right direction, but maybe not at the pace they are hoping for.”

Even though traders might have wanted to continue Monday’s momentum, indicated by higher futures, numbers like the employment cost index were a road bump, said Steve Sosnick, chief strategist at Interactive Brokers
IBKR,
-0.31%.

The report “definitely is not market-friendly, especially ahead of a Fed meeting” where the central bank is focused on the interplay between labor costs and inflation.

Caterpillar’s performance after its fourth-quarter outlook was also cause for caution, Sosnick said. It’s just one company, he noted — but it may be reflecting “a  pretty negative story about cyclicals right now.”

“All in all, this is what we think of as a mixed session and a market that is probably looking past today,” Sosnick said. There’s the Fed announcement and press conference Wednesday, followed by Apple earnings Thursday afternoon and then October jobs numbers on Friday morning, he noted.

Also Tuesday, new data showed home prices continuing to rise for the sixth straight month in the country’s 20 biggest metropolitan housing markets. The S&P CoreLogic Case-Shiller 20-city house-price index increased 1% in August from July. On an annualized basis, prices in the major markets climbed 2.2%.

Home prices are climbing even as mortgage rates inch close to 8%. New numbers on consumer confidence out Tuesday reached a five-month low, buffeted by the headwinds of rising interest rates, inflation worries and uncertainty about the Israel-Hamas war.

The 102.6 read in October slipped from a revised 104.3 in September, according to the Conference Board. Economists polled by the Wall Street Journal were expecting a read of 100.

Companies in focus

• Caterpillar Inc. shares 
  CAT,
  -5.79%
  sank 5.5% early Tuesday, after the maker of construction and mining equipment reported a big third-quarter profit beat, boosted by both higher prices and higher volume, but provided a tepid fourth-quarter sales outlook.

• JetBlue Airways Corp.’s stock
  JBLU,
  -13.69%
  fell 13.9% after the carrier warned it would post a wider-than-expected fourth-quarter loss, while it missed analyst estimates for its third-quarter loss and revenue.

• Pfizer Inc. shares 
  PFE,
  -1.49%
  edged down 1% Tuesday morning, after the drugmaker reported that it swung to a wider-than-expected third-quarter loss and revenue fell more than forecast amid weakness in COVID products, but still affirmed its full-year outlook. 

• BP shares
  BP,
  -4.84%

  BP,
  -4.52%
  dropped 4% on Tuesday after the British oil major fell short of analysts’ expectations in posting a 60% drop in its third-quarter profits, following a weak performance from its gas-trading division.