U.S. stocks lagged Monday in a downbeat final trading day of October but still closed the month firmly higher as a busy week marked by Fed policy, earnings, and jobs data got underway.
Equity markets still rounded the month out higher after a brutal September slump. The Dow ended October with a gain of 13.96%, its best monthly advance since January 1976 and its 10th best month of the last century, according to data from Bespoke Investment Group.
The Federal Reserve’s next policy announcement Wednesday and October’s monthly employment report set for release Friday will determine whether the tailwind will continue pushing stocks forward through the rest of 2022.
U.S. central bank officials are poised to raise the Fed’s benchmark policy rate by another 0.75%, but some strategists believe it could be the last outsized hike before officials scale back on tightening plans.
Pantheon Economics Chief Economist Ian Shepherdson said with still-high core CPI and payroll gains averaging 372,000 across the third quarter, investor expectations that policymakers will keep raising rates into next year are justified.
“But we see enough straws in the wind now to think that the economy is at a real inflexion point, while investors are putting too much emphasis on data, which right now appear to suggest that growth is holding up well,” he said.
“We doubt Chair Powell’s tone will change significantly this week, but he won’t be able to hold back the tide if the numbers turn,” Shepherdson added.
Elsewhere on Monday, President Joe Biden is scheduled to deliver a speech at 4:30 p.m. ET addressing “reports over recent days of major oil companies making record-setting profits even as they refuse to help lower prices at the pump for the American people,” the White House said in a statement.
The Labor Department’s jobs report is expected to show monthly payrolls fell below 200,000, a big drop-off from an average of 400,000 across much of the pandemic recovery but still near the pre-pandemic monthly average. Economists expect 190,000 jobs were added or created last month, according to consensus estimates from Bloomberg.
“I think it’s 50-50 come December whether [the Fed] stays with 75 or they downshift to 50,” Wells Fargo’s Brian Rehling says. “I don’t think the Fed’s going to commit one way or the other next week. It’s really going to come down to… the jobs report and… the inflation data.” pic.twitter.com/9nMiTCuxVc
— Yahoo Finance (@YahooFinance) October 28, 2022
And on the earnings front, companies are still rolling out third-quarter results. Of companies in the S&P 500 index that have reported so far, the net profit margin for the index is 12%, which is below the previous quarter’s net profit margin and below the year-ago net profit margin, but higher than the five-year average net profit margin of 11.3%.
Bank of America analysts said in a note that earnings overall so far have continued to “defy recessionary calls,” with many corporate metrics still above expectations.
Mega-caps, however, have been an exception to that sentiment this quarter. Data show third-quarter results marked the worst earnings season on record for mega-caps giants after one of their best seasons last quarter. Shares of Facebook parent company Meta (META) fell to the lowest close since 2015, dragged down by a post-earnings sell-off.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc