Wall St closes higher on eve of Fed decision; investors assess earnings

By Sinéad Carew and Amruta Khandekar

(Reuters) – Wall Street’s main indexes closed higher on Tuesday as investors looked ahead the Federal Reserve’s monetary policy update while they digested a mixed batch of earnings reports.

The Fed kicked off a two-day monetary policy meeting at which the central bank is widely expected to hold interest rates steady. Investors will monitor Fed Chair Jerome Powell’s comments for clues about its future plans.

Investors were also reacting to disappointing earnings reports and showed jitters over geopolitics.

Shares in heavy-machinery maker Caterpillar (NYSE:) fell as signs of slowing machinery demand overshadowed a quarterly earnings beat. And drugmaker Amgen (NASDAQ:)’s stock lost ground as third-quarter sales of some high-profile medicines were below expectations.

But with 10-year Treasury yields up just slightly, some investors took the opportunity to look for bargains after recent weakness in stocks, said Sameer Samana, Senior Global Market Strategist at Wells Fargo Investment Institute.

“All roads right now lead back to long-term rates which impact equities,” said Samana, adding that in stocks some investors may be encouraged by the idea that, “the recent sell-off brings us back to fairly valued from over-valued levels.”

However the strategist was wary of upcoming events that could be huge catalysts for bonds and in turn equities. Along with the Fed’s policy update, he will also watch the U.S. Treasury Department’s announcement about its financing plans.

Analysts have said it is likely to boost the size of auctions for bills, notes, and bonds in the fourth quarter to fund a widening budget deficit. This would cause rates to rise further and hurt stocks, according to Wells Fargo’s Samana.

And on Friday, equity investors will also be monitoring the October U.S. jobs report and the Treasury market’s reaction.

According to preliminary data, the S&P 500 gained 26.93 points, or 0.65%, to end at 4,193.75 points, while the Nasdaq Composite gained 61.76 points, or 0.48%, to 12,851.24. The Dow Jones Industrial Average rose 123.01 points, or 0.37%, to 33,051.97.

“Today’s move back into positive territory is on the growing consensus the Fed is more likely to hold off on any more rate hikes this year,” said Greg Bassuk, chief executive of AXS Investments in New York.

Bassuk also pointed to mixed earnings reports and companies “messaging concerns about upcoming quarters with energy prices rising and increasing uncertainty” around wars in Israel and Ukraine that are “showing no end in sight.”

Earlier, data showing a solid increase in U.S. labor costs in the third quarter prompted some concerns the Fed could keep interest rates higher for longer.

Of the 279 companies in the that have reported earnings to date, over 78% have beaten analyst estimates, per LSEG data. Analyst expect earnings growth of 4.9% for S&P 500 companies in the third quarter.

Nvidia (NASDAQ:) shares fell after a report said the latest U.S. curbs could force the chip designer to cancel billions of dollars of orders to China.

Pinterest (NYSE:) shares rallied after the image-sharing platform beat third-quarter revenue and profit estimates.

VF Corp (NYSE:) shares sold off after the Vans sneaker maker withdrew its annual forecast. Arista Networks (NYSE:) stock rallied after it gave an upbeat fourth-quarter revenue outlook.

Sarepta Therapeutics (NASDAQ:) shares plummeted on the failure of its muscle disorder gene therapy in a late-stage trial. Shares of Sarepta’s client, Catalent (NYSE:), also fell.