U.S. stock futures gain to cap strong January for Wall Street, with Fed decision ahead

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U.S. stocks shrugged off premarket weakness Tuesday and nudged higher after a mix of corporate earnings reports and data showing a slightly slower rise in wages, leaving the market to finish strong in January while another Federal Reserve interest rate decision awaits Wednesday.

What’s happening

  • The Dow Jones Industrial Average climbed 14 points, or 0.04%, to 33731.
  • The S&P 500 gained 13 points, or 0.3%, to 4031.
  • The Nasdaq Composite increased 65 points, or 0.5%, to 11459.

On Monday, the Dow Jones Industrial Average fell 261 points, or 0.77%, to 33717, the S&P 500 declined 53 points, or 1.3%, to 4018, and the Nasdaq Composite dropped 228 points, or 1.96%, to 11394.

The S&P 500 has gained nearly 5% this month.

What’s driving markets

The Federal Open Market Committee kicks off its two-day meeting on Tuesday, with near universal expectations for a quarter percentage point interest rate hike, with the uncertainty focused on the commentary to be delivered in the statement and the press conference with Chair Jerome Powell.

“We doubt that the Fed will deliver a dovish surprise at its meeting, but the imminent end of interest rate hikes is nevertheless positive for risk appetite,” said Willem Sels, global chief investment officer at HSBC Global Private Banking & Wealth. “That said, the main beneficiaries lie outside of the U.S. in emerging markets, where borrowing costs are already declining as U.S. Treasury yields have peaked and the dollar is falling.”

The U.S. dollar index is down 11% from its late September peak. The yield on the 10-year Treasury has fallen nearly 70 basis points from its late October peak of 4.23%.

The U.S. economics calendar Tuesday included the employment cost index which showed a 1% increase for the fourth quarter, less than expected, and a 5.1% increase for 2022, up from 5.0%.

The index is a gauge on how much companies, governments and nonprofit institutions are paying their staff in wages and benefits. Stock futures gained ground after the ECI data release.

“Slowing wage growth is a welcome sign that the economy may avoid the wage-price spiral that the Fed feared most,” Sinem Buber, lead economist at ZipRecruiter, said in an emailed statement.

The softening wage growth is on display in sectors fueled by consumer demand, with wage growth slowing “substantially” in retail trade, leisure and hospitality, and professional and business services during last year’s second half, according to Buber.

Companies in focus

  • Exxon Mobil shares are down more than 2.5% in Tuesday morning trading, after the oil giant’s fourth-quarter revenue fell short of estimates. 
  • Pfizer are flat, after the drug maker reported fourth-quarter profit that topped expectations but revenue and the full-year outlook missed.
  • Caterpillar dropped approximately 4% after the construction- and mining-equipment maker reported fourth-quarter profit that missed expectations. That’s its first earnings miss since 2020, as costs growth outpaced revenue growth, while revenue beat forecasts. 
  • General Motors  jumped more than 6% after the car company easily topped expectations with its fourth-quarter results and issued an upbeat profit forecast.
  • McDonald’s  shares slipped more than 2% after its earnings report. The fast food chain topped analysts’ top and bottom line expectations in its-fourth-quarter results, despite the impact of foreign currency pressures. 
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