Stock Market Today: Stocks Higher On Earnings, M&A Boost; Fed Rate Decision On Deck

U.S. equity futures resumed their recent climb Tuesday, while the dollar retreated against its global peers and oil prices jumped, as investors settled in for the start of the Federal Reserve‘s crucial two-day policy meeting in Washington.

Stocks were also given an early added boost from Johnson & Johnson’s  (JNJ)  planned $16.6 billion takeover of cardiovascular device maker Abiomed  (ABMD) .

With central banks around the world, mindful of the impact of their inflation fight on global growth prospects, signaling the potential for slower rate hikes in the months ahead, investors are betting on a dovish message from Fed Chair Jerome Powell tomorrow, even as they hold onto bets of a 75 basis point increase in its key lending rate, which currently sits between 3% and 3.5%.

The Reserve Bank of Australia, one of the first central banks to downshift the pace of its tightening cycle earlier this year, delivered a smaller-than-expected increase of 25 basis points overnight, taking its benchmark lending rate to a nine-year high of 2.85%.

That move helped take further steam out of the U.S. dollar, which was marked 0.65% lower against a basket of its global peers at 110.805, while benchmark 10-year note yields eased to 3.95%.

Anticipation of a Fed ‘pivot’ on rate hikes heading into 2023, as well as resilient industrial and other non-tech earnings for many U.S. companies over the September quarter and stronger-than-expected underlying economic data, has provided a solid boost for stocks heading into the final two months of the year.

Earnings may struggle to maintain that optimism, however, given that collective S&P 500 profits — once the energy sector is removed — are likely to fall by by 0.4%, with only a very modest gain expected over the three months ending in December.

“Following a remarkably broad-based rally that eluded nearly all of the mega-cap tech leadership that kept markets higher for so long, the market finds itself close to overbought conditions and primed for a pullback,” said Quincy Krosby, chief global strategist for LPL Financial in Charlottesville, Virginia.

“With inflationary pressures still elevated, but still beginning to inch lower, three month Euro dollar futures remain above 5%, underscoring that markets do not see an imminent ‘pivot’ from the Fed, despite the market’s unrelenting desire to see ‘pivot’ signs embedded in nearly all less hawkish Fed comments,” he added. 

Markets now face a crucial run of key data points, including Wednesday’s Fed rate decision, a Thursday policy meeting at the Bank of England, Friday’s October jobs report and next Tuesday’s mid-term elections, that will test the resilience of its recent rally.

Heading into the start of the trading day on Wall Street, futures contracts tied to the S&P 500 are priced for a 39 point opening bell advance while those linked to the Dow Jones Industrial Average are priced for a 210 point gain. The tech-focused Nasdaq is priced for a 150 point jump.

In overseas markets, the region-wide Stoxx 600 up 1.31% in Frankfurt, while London’s FTSE 100 rose 1.5%, thanks in part to higher oil prices and blowout third quarter earnings of $8.2 billion from BP plc.

Overnight in Asia, the region-wide MSCI ex-Japan index was marked 2.58% higher amid unverified reports of a pending ease in lockdown restrictions in China, while Japan’s Nikkei 225 rose 0.33% to a six-week high of 27,5678.92 points.

Reports of loosing Covid restrictions, as well as a weaker U.S. dollar, added heft to global oil prices, with WTI crude futures for December delivery rising $2 to $88.52 per barrel.

That move came just hours after President Joe Biden accused the biggest U.S. oil companies of making “a windfall of war” that powered record profits but left Americans paying more for gas and home heating as a result.

“My team will work with Congress to look at these options that are available to us and others,” Biden told reporters at the White House late Monday. “It’s time for these companies to stop war profiteering, meet their responsibilities in this country and give the American people a break and still do very well.”

Exxon Mobil  (XOM)  shares were marked 1.65% higher in pre-market trading to indicate an opening bell price of $112.65 each, a move that would extend the stock’s year-to-date gain to around 83.8%. Chevron  (CVX) , which is up 52% for the year, gained 1.63% to $183.85 each.

Uber Technologies  (UBER)  shares were another notable mover, rising 13% after it posted stronger-than-expected third quarter revenues and forecast firmer near-term profits a growth in its rides business offset a modest slowdown in food deliveries.

Pfizer  (PFE)  shares rose 5% after the drugmaker posted stronger-than-expected second quarter earnings, while boosting its vaccine sales forecast, amid the ongoing demand for its Covid vaccine and antiviral treatment. 

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