US stocks edged lower yesterday as investors took to the sidelines ahead of expected upheaval from next week’s elections and likely additional stimulus by the Federal Reserve.
Next week’s events could signal shifts in both monetary policy and legislative direction, leading investors to be cautious and largely disregard yesterday’s corporate earnings and economic reports.
A look at exchange-traded funds based on some broad market indexes and sectors showed premiums for November out-of-the-money puts outweighed equally spaced call contracts for most instruments. Overall US output volume rose 21.3 per cent on Wednesday, while the CBOE Volatility Index logged its fourth consecutive session of gains, up 1.8 per cent.
Yesterday also brought about a breakdown in the recent inverse correlation between stocks and the dollar, as stocks slipped and the dollar index shed 1.1 per cent against a basket of currencies.
The Dow Jones industrial average was down 12.33 points, or 0.1 per cent, at 11,109.71. The Standard & Poor’s 500 Index was up 1.22 points, or 0.10 per cent, at 1,183.67. The Nasdaq Composite Index was up 4.11 points, or 0.16 per cent, at 2,507.37.
3M slid six per cent to $84.95 and pulled the Dow lower after the diversified manufacturer reported quarterly earnings that just beat expectations, but trimmed its outlook due to costs from recent acquisitions.
New claims for unemployment benefits fell unexpectedly in the latest week, and this more encouraging reading on the labor market, along with the weak dollar, gave stocks an early boost.
However, investors remained cautious about making big bets ahead of the outcome of the mid-term elections and the Fed’s announcement. Fed policymakers are set to meet on Tuesday and Wednesday.
Anticipation of a Fed move has been a driver of recent market action as investors speculated over the size and time frame of further stimulus. Equity investors have bet that more easing will invigorate an economic recovery and lift asset prices. Since the beginning of September, the S&P 500 is up 12 per cent.