On Monday, U.S. stocks closed mixed as benchmark U.S. Treasury yields retreated from the previous five percent.
The Dow Jones Industrial Average (.DJI) dropped 190.87 points, or 0.58 percent, to 32,936.41, marking its fourth straight daily decline.
The Nasdaq Composite (.IXIC) added 34.52 points, or 0.27 percent, at 13,018.33. It racked up the most significant gains among major indexes on Wall Street, boosted by stocks like Microsoft and Nvidia.
After a five-session slide, the S&P 500 closed at its lowest level since May, though it held above the critical 4,200 support level. It also ended below its 200-day moving average for the second straight session. It lost 7.12 points, or 0.17 percent, at 4,217.04.
Among the 11 key sectors of the S&P 500, communication services (.SPLRCL) led with gains. Meanwhile, energy shares (.SPNY) suffered significant losses.
David Lefkowitz, head of U.S. equities at UBS Global Wealth Management, said the equity risk premium — the difference between the earnings yield on the S&P 500 and the 10-year rate — is not currently alarming.
Rising interest rates have allowed investors to generate more income from bonds and money-market accounts, giving stocks more competition. Analysts explain that rising interest rates often reduce the attractiveness of stocks.
Upcoming economic data
This week is set to be eventful regarding earnings. Investors will be closely watching reports from nearly one-third of S&P 500 companies.
So far, 86 of the companies in the S&P 500 have posted earnings. Among those are mega-cap momentum drivers like Microsoft, Alphabet, Meta Platforms and Amazon, as well as significant players in the industrial sector such as General Motors, Ford, and Boeing.
According to LSEG data, 78 percent of reported earnings have exceeded expectations. Analysts anticipate a 1.2 percent year-on-year growth in aggregate S&P 500 earnings for July-September, slightly below the initial 1.6 percent projection.
However, those falling short of earnings-per-share estimates have seen their stocks underperform the index by a median of 3.7 percent on the results day, marking the worst performance since Q2 2019.
In other news, the Commerce Department is set to release third-quarter gross domestic product (GDP) data on Thursday, with an anticipated acceleration of 4.3 percent.
Their comprehensive Personal Consumption Expenditures (PCE) report, scheduled for Friday, is expected to indicate a reduction in annual headline and core inflation to 3.4 percent and 3.7 percent, respectively.
"The Fed wants to slow inflation at a quicker pace than it slows economic growth, and it's doing so," said Oliver Pursche, senior vice president at Wealthspire Advisors in New York.
A similar statement came from billionaire investor Bill Ackman. In a post on X, formerly known as Twitter, he wrote that the U.S. economy was "slowing faster than recent data suggests."
The Fed may have to rethink how long it keeps its benchmark policy lending rate at 5.2 to 5.50 percent. Based on the market's expectations, traders predict that the Fed will start cutting rates in June 2024.
The market participants are also looking for potential signs of the Middle East conflict broadening or escalating.
Oil prices rebounded Tuesday in Asia trading, recouping some of the previous day's losses. Brent crude futures rose 50 cents, or 0.5 percent, to $90.33 a barrel, while U.S. West Texas Intermediate crude futures gained 46 cents, or 0.5 percent, to $85.95 a barrel.
The rebound came after a preliminary Reuters poll showed that U.S. crude stockpiles were expected to have increased last week while distillate and gasoline inventories fell.