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Fundamental Analysis

Equities Gain Ground as Fed Policy Meeting Looms

  • The Federal Reserve started its two-day monetary policy meeting on Tuesday.
  • Disappointing earnings and geopolitical uncertainties weighed on risk appetite.
  • Data showed a solid rise in US labor costs in Q3.

US equities rose on Tuesday as investors awaited the Federal Reserve’s monetary policy update and processed mixed earnings reports. 

The Federal Reserve initiated a two-day monetary policy meeting. It is widely expected to maintain interest rates on Wednesday, with investors closely watching its statement and Fed Chair Jerome Powell’s comments for insights into their plans. However, optimism about the Fed pausing rate hikes was dampened by disappointing earnings and geopolitical uncertainties.

Shares of heavy-machinery maker Caterpillar plummeted by 6.7% due to signs of slowing demand, overshadowing a quarterly earnings beat. Likewise, drugmaker Amgen’s stock declined by 2.8% as third-quarter sales of high-profile medicines fell short of expectations. 

Analysts anticipate earnings growth of 4.9% for S&P 500 companies in Q3. 279 companies in the S&P 500 have reported earnings to date. Of that number, over 78% have reported above analyst estimates, per LSEG data. 

Greg Bassuk, CEO of AXS Investments in New York, stated, “Today’s move into positive territory is due to the growing consensus that the Fed is more likely to postpone rate hikes this year.” 

Moreover, Bassuk noted caution due to the mixed earnings reports and increasing fears about wars in Israel and Ukraine that might not end anytime soon.

Wall Street’s leading indices had their third consecutive monthly loss. The S&P 500 was down 2.2% for October, and the Dow was down 1.4%. Nasdaq, which fell 2.8% in October, last dropped for three months in June 2022.

US employment costs (Source: Bureau of Labor Statistics)

US employment costs (Source: Bureau of Labor Statistics)

Meanwhile, data showed a solid rise in US labor costs in Q3. It prompted some fears that the Fed could keep current rates higher for longer. This Friday, investors will also monitor the October US jobs report and the Treasury market’s reaction.

European equities rose on Tuesday as investors drew comfort from corporate earnings. However, the benchmark index closed October sharply lower amid concerns over economic growth and high interest rates.

The pan-European STOXX 600 was up 0.6% but still had its worst monthly performance since September 2022. Meanwhile, Eurozone economic growth was slower than expected in Q3. There was a sharp decline in the year-on-year growth rate. Elsewhere, German retail sales dipped in September because of persistently high inflation.