Market Snapshot: Dow trades 100 points lower, U.S. stocks struggle for direction as investors wait for Fed decision

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What’s driving the market?

Stocks struggled for direction Wednesday, a day after all three major benchmarks logged record closing highs for a third straight trading, the first time that has happened since December 2019. Resilient corporate earnings, despite supply chain disruptions, higher commodity prices and the surge in coronavirus delta cases in the third quarter, have done much of the heavy lifting for stocks recently.

Investors are focused on the outcome of a two-day Fed meeting, where Chairman Jerome Powell and his colleagues are expected to confirm the start of a reduction in bond purchases. The announcement is due at 2 p.m. Eastern Time, followed by a news conference with Powell at 2:30 p.m.

Read: 5 things to watch for when Fed meets Wednesday

“Inflation is the big worry,” said David Petrosinelli, senior trader at InspereX, but he also pointed to concerns about if U.S. consumers and businesses feel the Fed can adequately deal with inflation pressures going forward, particularly as a host of companies in the third-quarter earnings season suggest that higher prices could continue through 2023.

“It’s a very different time, and I wonder if monetary policy is as effective when it comes to addressing supply-side dynamics,” Petrosinelli said. “What does a rate hike have to do with someone coming back to work? Or container ships piled up out of Long Beach?”

The Fed decision on its tapering plans comes as other major central banks are shifting toward a more hawkish policy stance, except for Japan and the European Central Bank (ECB), there is a rising pressure on the Fed to start thinking about ‘thinking about’ raising rates, said Ipek Ozkardeskaya, senior analyst at Swissquote, in a note to clients.

“Mr. Powell is ideally not willing to touch U.S. interest rates until 2023, but if inflation proves stickier than he first thought, keeping the rates near zero would be a policy mistake that could cost him and the U.S. economy dearly,” said the analyst.

In U.S. economic data, privately run U.S. businesses created 571,000 new jobs in October, an ADP survey found. Economists surveyed by The Wall Street Journal had forecast a rise of 395,000.

The Institute for Supply Management’s closely watched services index for October jumped to a record 66.7% from 61.9% in September, surpassing expectations for a reading of 62%. A reading of more than 50% signals expanding activity.

“The surge in the index sends a positive signal about the post-delta economy, with the business activity and new orders components soaring by 7.5 and 6.2 points respectively, taking both to all-time highs…The bad news is that the supply-chain indicators — supplier delivery times, prices paid, and the order backlog — all materially worsened, with all three hitting new highs,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note.

In the same vein, IHS Markit said its U.S. services sector purchasing managers index came in at 58.7 in October, up from 54.9 in September and above its earlier “flash” estimate of 58.2.

What companies are in focus?

Zillow Group Inc.
Z,
-23.92%

ZG,
-22.36%
shares fell 23% after the real-estate giant late Tuesday pulled the plug on its home-flipping business and said it expected losses of more than $550 million on homes purchased in the second half of this year for which the company admits it paid too much.

Shares of Bed Bath & Beyond
BBBY,
+20.96%
climbed 21% after the retailer late Tuesday announced a partnership with grocery chain Kroger
KR,
+4.45%.
The popular meme stock also said it was ahead of its share buyback schedule.

Shares of Activision Blizzard
ATVI,
-15.06%
tumbled 15% after the videogame publisher’s lighter-than-expected outlook and expected delay of two games overshadowed an earnings beat.

Lyft Inc.
LYFT,
+7.57%
shares surged more than 7% after the ride-share company posted a 73% annual rise in revenue.

New York Times Co.
NYT,
-7.10%
shares were down 6.2% after the newspaper group beat earnings estimates and offered upbeat guidance.

CVS Health Corp. 
CVS,
+5.40%
beat estimates by 19 cents with adjusted quarterly earnings of $1.97 per share and revenue beating Wall Street forecasts. The drugstore chain and pharmacy-benefits manager got a boost from increased demand for Covid testing and vaccinations. Shares rose 5.3%.

Humana
HUM,
+0.07%
reported adjusted quarterly earnings of $4.83 per share, beating the estimate of $4.66, while revenue was a beat on strength in the health insurer’s Medicare Advantage business. Shares were up 0.1%.

Shares of Avis Budget Group Inc.
CAR,
-18.40%
fell 17.8% after Wall Street downgrades that followed the 108% rise for shares of the car-rental company on Tuesday — a move attributed to a short squeeze fueled by a meme-stock frenzy.

Read: It’s not a typo, the Dow transports really rose more than 1,000 points, because of Avis’ stock

How are other assets trading?

The yield on the 10-year Treasury note 
TMUBMUSD10Y,
1.566%
rose 2 basis points to 1.57%. Yields and debt prices move in opposite directions.

Oil futures pulled back, with the U.S. benchmark 
CL00,
-3.09%
dropping 3.2% to $81.23 a barrel. Gold futures 
GC00,
-1.53%
fell 1.5% to $1,763.40 an ounce.

The Stoxx Europe 600 Index 
SXXP,
+0.35%
 was up 0.4%, while London’s FTSE 100
UKX,
-0.36%
 fell 0.4%.

The Shanghai Composite 
SHCOMP,
-0.20%
 fell 0.2%, while the Hang Seng Index 
HSI,
-0.30%
fell by a similar amount in Hong Kong and Japan’s Nikkei 225 
NIK,
-0.43%
shed 0.4%.

Barbara Kollmeyer contributed reporting