Stock Market Today: Stocks Retreat on Renewed Inflation, Interest Rate Questions

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The three major U.S. equity indexes were down and bond yields were up across the term horizon on Tuesday, as investors continue to adjust to the reality of a second Trump administration.

"Financial market reactions since Election Day have been fast and sharp, largely recognizing the potential for tariffs, limits on immigration, deregulation, and corporate tax incentives," observes Paul Christopher, head of global investment strategy at the Wells Fargo Investment Institute, in an alert issued on Monday.

"Initial post-election market reactions have been picking and choosing which policy possibilities to respond to. Our experience is that such narrow reactions have not historically made for durable investment opportunities, and we favor pausing to look more closely at the likely main policy initiatives," he writes.

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Christopher identifies near-term policies that would require congressional support in 2025 such as the extension of the Tax Cuts and Jobs Act of 2017 (TCJA) that formed the centerpiece of Trump's first-term economic program as well as potential executive orders on immigration and tariffs as "policies to watch for."

With the bond market back open following the Veterans Day holiday, the yield on the 10-year U.S. Treasury note rose 12 basis points to 4.43%. The 2-year U.S. Treasury yield – widely watched for what it says about the short-term direction of interest rates – added 9 basis points to close at 4.34%. The 2-year yield is up 75 basis points from 3.59% since the Federal Reserve started trimming the target range for its federal funds rate in September.

The yield on the 30-year Treasury bond, meanwhile, rose 9 basis points to 4.57% and is now up 62 basis points from 3.95% when the Fed started cutting rates.

The S&P 500 was down 0.3% to 5,984, and the Dow Jones Industrial Average shed 0.9% to close at 43,911. The tech-heavy Nasdaq Composite tried to defy the general gravity and rally into the close but came up short with a modest 0.1% loss to 19,281.

Economic data, inflation news and interest rates

Economic data flow this week started with the NFIB Small Business Optimism Index, which was up by 2.2 points in October to 93.7. According to the NFIB, October marks the 34th consecutive month its optimism index has been below the 50-year average of 98.

The NFIB said the results of its survey found that 23% of owners reported that inflation was their single most important problem in operating their business in October, unchanged from September and still the top issue.

"The start of the Fed's easing cycle appeared to give small business owners a dose of optimism in October, while expectations surrounding November's election also likely played a role," said Wells Fargo Economist Charlie Dougherty in a statement.

On the inflation front, the Bureau of Labor Statistics (BLS) is set to report Consumer Price Index (CPI) data for October on Wednesday at 8:30 am Eastern time.

"The median estimate (year-over-year, not seasonally adjusted) for the CPI for the month of October 2024 is 2.6%," writes John Butters, senior earnings analyst at FactSet. "If 2.6% is the actual year-over-year increase in the CPI, it will mark the first month-over-month increase in the number since March 2024. The number has declined for six straight months (April 2024 through September 2024)."

According to the CME Group's FedWatch Tool, traders now see a 38% chance the Fed will keep its target range for the fed funds rate steady at 4.5% to 4.75% in December, up from a 15% probability a month ago. And traders now expect the target range for the fed funds rate to be 4% to 4.25% in June 2025. A month ago, the market expected the range to be 3.5% to 3.75%.

Investors and traders will look forward to Fed Chair Jerome Powell's appearance at the Federal Reserve Bank of Dallas at 3 pm Eastern on Thursday for commentary about the trajectories of both inflation and interest rates.

If Powell's performance in his post-Federal Open Committee Meeting press conference on November 7 is any indication, he will have little specific to say about the incoming Trump administration and its potential impact on either the economy or monetary policy. However, he could reiterate that he intends to remain in his present position through the end of his term in 2026.

Stocks on the move

Shopify (SHOP) stock soared 20.4% after the e-commerce technology company beat expectations for its third quarter and issued a strong outlook for its fourth quarter.

"Q3 was outstanding, further establishing Shopify as a leader in powering commerce anywhere, anytime," said Shopify President Harley Finkelstein in a statement. "Our unified commerce platform is becoming the go-to choice for merchants of all sizes."

Shopify said third-quarter revenue was up more than 26% year over year and net income nearly doubled. For the fourth quarter, management expects to report revenue growth in the mid- to high-20s in percentage terms, ahead of a consensus analyst forecast for 23%.

"As the busiest shopping season of the year for our merchants approaches, they trust Shopify to provide the tools, unmatched speed, and reliability to maximize their success," Finkelstein said.

Home Depot (HD) stock closed down 1.3% even after the home improvement retailer reported a third-quarter beat and improved full-year outlook.

"While macroeconomic uncertainty remains, our third-quarter performance exceeded our expectations," said Home Depot CEO Ted Decker in a statement. "As weather normalized, we saw better engagement across seasonal goods and certain outdoor projects as well as incremental sales related to hurricane demand."

Revenue for the three months ended September 30 was up nearly 7% year over year despite a 1.3% decline in comparable-store sales, and earnings per share were down roughly 2% to $3.78.

HD now expects to report full-year revenue growth of approximately 4% vs a previous forecast of 2.5% to 3.5%. Management also narrowed its forecast for earnings per share to a full-year decline of 1% vs a previous forecast of a 1% to 3% decline.

Data gathered by Truist Securities analyst Scot Ciccarelli for October showed the first monthly year-over-year sales gain for Home Depot "in well over two years, which we think is an important inflection in trend."

Honeywell International (HON) was the best stock in Dow on Tuesday with a gain of nearly 4% after Elliott Investment Management disclosed a stake in the conglomerate worth more than $5 billion.

The activist investor said it will push for a breakup of Honeywell into two standalone companies. HON stock spiked as much as 7.8% off Monday's closing price in pre-market trading.

"As independent entities," Elliott said in a statement, "Honeywell Aerospace and Honeywell Automation would benefit from simplified strategies, focused management, improved capital allocation, better operational performance, enhanced oversight, and numerous other benefits now enjoyed by dozens of large businesses that have moved on from the conglomerate structure."

Elliott further noted that "over the past five years in particular, Honeywell's share price has dramatically underperformed both its peers and the broader market" and that its "cumulative total shareholder return has underperformed benchmarks across virtually all time periods over the past ten years."

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David Dittman is the former managing editor and chief investment strategist of Utility Forecaster, which was named one of "10 investment newsletters to read besides Buffett's" in 2015. A graduate of the University of California, San Diego, and the Villanova University School of Law, and a former stockbroker, David has been working in financial media for more than 20 years.

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