Stocks drop to start a busy week but late October with gains

US equities lagged on Monday on a negative last trading day in October, but still ended the month firmly higher as a busy week of Fed policy, earnings and employment data began.

The S&P 500 (^ GSPC) fell 0.7%, while the Dow Jones Industrial Average (^ DJI) wiped out about 130 points, or 0.4%. The high-tech Nasdaq Composite (^ IXIC) recorded a 1% decline.

Equity markets still ended the month higher after a brutal September crash. The Dow ended October with a gain of 13.96%, the best monthly advance since January 1976 and the 10th best month of the last century, according to data from Bespoke Investment Group.

The Federal Reserve’s next policy announcement on Wednesday and October’s monthly employment report due for release on Friday will determine whether the favorable wind will continue to push stocks forward for the remainder of 2022.

US central bank officials are poised to raise the Fed’s key rate by another 0.75%, but some strategists believe it could be the last huge hike before officials cut back on tightening plans.

Ian Shepherdson, chief economist at Pantheon Economics, said that with a still high core CPI and average earnings of 372,000 wages in the third quarter, investor expectations that politicians will continue to raise rates in the next year are justified.

“But now we see enough straw in the wind to think the economy is at a real inflection point, as investors are placing too much emphasis on the data, which right now seems to suggest growth is holding up well,” he said.

WASHINGTON, DC – OCTOBER 14: US Federal Reserve Chairman Jerome Powell attends a meeting of the IMFC (International Monetary and Financial Committee) at the IMF and World Bank Annual Meetings at the IMF Headquarters October 14, 2022 in Washington , DC. (Photo by Drew Angerer / Getty Images)

“We doubt President Powell’s tone will change significantly this week, but he won’t be able to hold back the tide if the numbers change,” Shepherdson added.

Elsewhere on Monday, President Joe Biden will deliver a speech at 4:30 PM ET addressing the “last-day reports of major oil companies making record profits even as they refuse to help cut prices at the pump for the American people.” , The White House said in a statement.

The Labor Department’s employment report is expected to show monthly wages have fallen below 200,000, a steep drop from an average of 400,000 in much of the recovery from the pandemic, but still close to the pre-pandemic monthly average. Economists predict 190,000 jobs were added or created last month, according to Bloomberg’s consensus estimates.

And on the earnings front, companies are still rolling out their third quarter results. Among the S&P 500 index companies that have recorded so far, the net profit margin for the index is 12%, which is lower than the previous quarter’s net profit margin and lower than the net profit margin from a year ago. but higher than the five-year average net profit margin of 11.3%.

Bank of America analysts said in a statement that overall earnings so far have continued to “defy recession demands,” with many business metrics still above expectations.

Mega-caps, however, were an exception to this sentiment this quarter. The data shows that the third quarter results marked the worst earnings season on record for the mega-cap giants after one of the best seasons of last quarter. Shares in Facebook’s parent company Meta (META) fell to their lowest close since 2015, dragged down by a post-earnings sell-off.

Alexandra Semenova is a Yahoo Finance journalist. Follow her on Twitter @alexandraandnyc

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