U.S Stocks Remain Lower as Strong Retail Sales Overshadow Earnings

In the morning on Tuesday, U.S. stocks remained in negative territory as investors were closely monitoring strong consumer spending figures for September. The concern lies in the potential for another interest rate hike by the Federal Reserve to combat rising inflation. Additionally, investors were digesting more earnings reports from major banks, many of which exceeded expectations.

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Here's how the stock market was performing:

• The S&P 500 slipped by 10 points, equivalent to a 0.1% decline, reaching 4,362.
• The Dow Jones Industrial Average saw a decrease of 65 points, or nearly 0.2%, bringing it to 33,919.
• The Nasdaq Composite was down 61 points, accounting for a 0.4% decline, and stood at 13,506.

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On the previous day, the Dow Jones Industrial Average had experienced a gain of 314 points, marking a 0.93% increase, with the S&P 500 rising by 46 points, a 1.06% gain, and the Nasdaq Composite advancing by 161 points, equivalent to a 1.2% increase.

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The main drivers for the market trends on Tuesday were as follows:

Earnings reports for the third quarter continued to roll in, with about 10% of S&P 500 companies scheduled to release their results this week. Most of those that have reported thus far have surpassed expectations in both earnings and revenues.

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Notable companies, including JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, Bank of America, and BNY Mellon, have reported results that exceeded Wall Street's consensus forecasts.

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In addition to the financial sector, Johnson & Johnson and Lockheed Martin also published their earnings reports. Reports from Omnicom and Interactive Brokers are expected after the market closes.

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U.S. retail sales for September turned out to be stronger than anticipated, which raised concerns of a potential interest rate hike by the Federal Reserve in its efforts to curb inflation. Retail spending for the month saw a significant 0.7% increase, even when excluding auto sales, there was a 0.6% rise. Economists polled by the Wall Street Journal had expected a more modest 0.2% increase.

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Consequently, Treasury yields were approaching levels not seen in 16 to 17 years. The 10-year Treasury note saw a 13 basis point climb to approximately 4.84%, nearing levels last observed in early August 2007.

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Although there is still a relatively high likelihood, at nearly 88%, that the Federal Reserve will maintain its current federal funds rate, traders have reduced their confidence from nearly 95% on Monday. The day offers speeches from Fed officials, including John Williams, New York Fed president, and Richmond Fed President Tom Barkin.

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A positive aspect is that consumer spending remains robust, and consumers continue to spend. This is bolstered by a healthy job market, allowing consumers to have both the financial means and confidence to sustain their spending.

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Investors must navigate between the positive earnings reports and the challenges posed by Treasury yields, as emphasized by Andres Garcia-Amaya, founder and CEO of Zoe Financial. The strong retail sales figures are considered a positive indicator that a recession is unlikely, supporting the view that the Fed can implement interest rate increases without triggering an economic downturn.

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Despite exceeding expectations, the retail sales data was not seen as an excessive blowout, which is beneficial in preventing excessive inflationary pressure. Therefore, the stock market's reaction to the retail sales data is expected to diminish as the focus returns to earnings reports.

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Additionally, other economic indicators included a decline in U.S. home builder confidence to its lowest level since January and a 0.3% increase in U.S. industrial output for September, surpassing the anticipated 0.1% rise.

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