Updated at 4:15 pm ET
Stocks finished lower Monday, while the dollar retrenched against its global peers amid a jump in Treasury bond yields, as investors adopted a cautious tone heading into a crucial ten-day stretch for global markets.
Wall Street's sharp rally on Friday, paced by the best single-day gain for Apple (AAPL) – Get Free Report shares in more than two years, lifted all three indices by around 2.5% and put the Dow on pace for its best monthly gain since 1976.
Fading bets on another big rate hike from the Federal Reserve in December, following softer-than-expected inflation data Friday, added to the optimism, as did broad-based gains for S&P 500 earnings reports that offset the impact of weaker-than-expected Big Tech updates from Amazon (AMZN) – Get Free Report, Microsoft (MSFT) – Get Free Report and Google (GOOGL) – Get Free Report earlier in the week.
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 the market's recent rally.
"There is a lot of debate over whether October's stock market rally is sustainable, but up and down volatility is going to be the norm for a while until there is greater resolution on when the Fed pauses its rate hikes, how far earnings expectations for 2023 will fall and how severe the economic dip will be," said David Bahnsen, CIO of Bahnsen Group, a wealth management firm based in Newport Beach, Calif. with $3.85 billion in assets under management.
"With about one week to go until the midterm elections, it's essentially a foregone conclusion that the Republicans take control of the House and likely the Senate, too," he added. "Ultimately, a divided government may be a positive for markets in that nothing bad gets done policy wise, but also nothing good gets done either."
With the Fed meeting up first, the CME Group's FedWatch has the chances of a 75 basis point rate hike pegged at 88.2%, but the chances of a follow-on move in December have fallen to around 46.6%.
Still, benchmark 10-year note yields were marked 6 basis points higher in overnight trading at 4.05%, with 2-year notes rising to 4.499%, suggesting traders aren't yet convinced of a Fed pullback heading into Chairman Jerome Powell's press conference on Wednesday afternoon. The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.45% higher at 111.203.
In the meantime, another busy week of earnings data will occupy investors' attention, as collective S&P 500 profit are expected to rise 3.1% from last year to $458.9 billion. Stripping away massive gains from the energy sector, however, and earnings are forecast to decline by 0.4%, with only a very modest gain expected over the three months ending in December.
Around 163 S&P 500 companies will report third quarter earnings this week, highlighted by updates from Pfizer (PFE) – Get Free Report, CVS Health (CVS) – Get Free Report, Advanced Micro Devices (AMD) – Get Free Report and Starbucks (SBUX) – Get Free Report.
Nearly 75% of the 99 companies reporting so far have topped earnings forecasts, according to Refinitiv data, just shy of of the four-quarter average of around 78.1%.
That puts a great deal of emphasis on both Wednesday's Fed decision, as well as the Friday payroll data, as markets look to defend gains built into the start of the final trading quarter of the year.
The S&P 500 finished down 0.7%, while the Dow Jones Industrial Average fell 137 points, or 0.39%, to 32,734. The tech-focused Nasdaq lost 1.03%. For the month, the Dow gained more than 4,000 points to log a nearly 14% gain.
Apple shares finished down 1.5% amid concerns that iPhone output from a key factory in China could be curtailed by Beijing's strict 'zero Covid' health policies.
In overseas markets, the region-wide Stoxx 600 was up 0.2% from Friday's close in mid-day Frankfurt trading, although government bond yields were firmly higher following another record inflation print as consumer prices rose by a faster-than-expected 10.7% in October, according to preliminary data published Monday by the region's official statistics office.
Overnight in Asia, stocks were able to rise modestly despite another grim set of data from China, which showed factory activity contracting over the month of October, paired by a pullback in its services sector as well, amid Beijing's ongoing Covid crackdown.
The region-wide MSCI ex-Japan index was marked 0.18% higher heading into the close of trading, while Japan's Nikkei 225 rose 1.748% to a six-week high of 27,587.46 points amid a solid rally for tech stock's following Friday's gains on Wall Street.
Updated at 4:15 pm ET