Dow on track for third straight monthly loss as investors await Wednesday Fed decision

What’s driving markets

Traders are attempting to extend stock markets’ Monday rally, 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.

Caterpillar Inc.
CAT,
-6.27%
shares dropped 6%, leading Dow decliner and dragging on the blue-chip gauge. Even with a third-quarter profit beat, the maker of construction mining equipment has a tepid outlook for the fourth quarter.

The company’s performance is a cause for broader caution, according to Steve Sosnick, chief strategist at Interactive Brokers. It’s just one company, he noted — but it may be reflecting “a pretty negative story about cyclicals right now.”

Pfizer Inc.
PFE,
-0.71%
shares were also lower after a wider-than-expected loss, although the pharmaceutical maker did reaffirm its full-year outlook.

The most widely anticipated earnings event this week is Thursday after the bell, when Apple Inc.
AAPL,
-0.12%
reports its numbers.

Then there’s the focus on the Treasury market. The 10-year Treasury yield
BX:TMUBMUSD10Y
dropped 2.3 basis points to 4.87% Tuesday 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%.

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 policy makers — things are headed in the right direction, but maybe not at the pace they are hoping for.”

The employment cost 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, said Interactive Brokers’s Sosnick.

Also Tuesday, new data showed home prices continuing to rise for the sixth straight month in the country’s 20 biggest metropolitan housing markets, even as mortgage rates inch closer to 8%. 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%.

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

• JetBlue Airways Corp.’s stock
  JBLU,
  -10.97%
  fell 12.9% 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.

• BP shares
  BP,
  -4.96%

  BP,
  -4.58%
  dropped 4.5% 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.

— Jamie Chisholm contributed.