Stocks finished lower as data showing a solid U.S. labor market bolstered speculation that Federal Reserve policy could remain aggressively tight even with the threat of a recession.

At a time when good news is considered bad news when it comes to policy conjectures, the S&P 500 wiped out a rally as the figures highlighted an unexpected rebound in U.S. job openings, which may keep the pressure on the Fed. It was the 26th time in 2022 that the equity gauge erased a gain or loss of at least 1 per cent in one session -- the most for any year since the financial crisis.

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“Hopes for a Fed dovish pivot are misplaced if today’s job openings are any guide,” said Ronald Temple, head of U.S. equity at Lazard Asset Management. “Despite other signs of economic deceleration, the job openings data taken together with nonfarm payroll growth indicate the Fed is far from the point where it can declare victory over inflation and lift its foot off the economic brake.”

Friday’s jobs report is currently forecast to show U.S. employers added about 196,000 workers to payrolls in October. Economists are expecting the unemployment rate to edge up to 3.6 per cent, and for average hourly earnings to post another solid advance.

After the closing bell, Advanced Micro Devices Inc. topped earnings estimates, but gave a downbeat forecast for the current period. Airbnb Inc. slumped as demand weakened for pricey pandemic-era bookings. Electronic Arts Inc., the video game publisher behind franchises such as Madden NFL, cut its forecast for net bookings, citing the strength of the U.S. dollar. 

Big tech weighed on equities Tuesday, with Apple Inc. down almost 2 per cent and Amazon.com Inc. hitting its lowest since 2020. Facebook parent Meta Platforms Inc. jumped. After notching its best month in 46 years, the Dow Jones Industrial Average traded near a resistance level that saw the index halt a few rally attempts in the past few months. Two-year U.S. yields, which are more sensitive to imminent Fed moves, rose.

Also weighing on market sentiment was a separate report showing U.S. manufacturing neared stagnation in October as orders contracted for the fourth time in five months, while an index of prices paid fell to a more than two-year low. The figures added to evidence of recession concerns as central banks step up the fight to get inflation under control.

To Matt Maley at Miller Tabak + Co., a lot of what will take place in markets over the next few weeks will hinge upon Powell’s signals on Wednesday as well as the subsequent Fedspeak. Tom Porcelli at RBC Capital Markets says that if the Fed’s boss really wants to transition to shallower hikes, he should maintain some element of hawkishness as there’s a “decent risk of creating confusion.”

“As we have not yet reached the peak for Fed rate hikes, it’s highly unlikely that we’ve already seen the bottom of this bear market, especially given the history of Fed rate hikes peaking before the market troughs,” noted Seema Shah, chief global strategist at Principal Asset Management. She anticipates the market floor for this cycle will most likely be reached in the first or second quarters of 2023.

For now, Shah sees both market and inflation volatility persisting alongside further Fed rate hikes in the last few months of 2002 and into early next year.

Lauren Goodwin at New York Life Investments says she believes the Fed may pause its rate hikes soon even amid strong inflation. Financial conditions have tightened substantially, and recession should be considered a base case, she added.

“Let me be clear -- a Fed pause is not the same as a pivot,” Goodwin added. “Certainly, deteriorating economic and credit conditions could cause the Fed to pivot modestly at some point, but a full pivot into accommodative territory is highly unlikely in the next year.”

Earlier in the day, speculation that China is preparing to gradually exit the stringent Covid Zero stance helped boost equities. A gauge of the nation’s stocks listed in Hong Kong surged almost 7 per cent intraday. Shares pared gains after Chinese Foreign Ministry spokesman Zhao Lijian said he’s “not aware” of a committee on ending the policy.

Key events this week:

• EIA crude oil inventory report, Wednesday
• Federal Reserve rate decision, Wednesday
• U.S. MBA mortgage applications, ADP employment, Wednesday
• Bank of England rate decision, Thursday
• U.S. factory orders, durable goods, trade, initial jobless claims, ISM services index, Thursday
• ECB President Christine Lagarde speaks, Thursday
• U.S. nonfarm payrolls, unemployment, Friday

Some of the main moves in markets:

Stocks

•  The S&P 500 fell 0.4 per cent as of 4 p.m. New York time
•  The Nasdaq 100 fell 1 per cent
•  The Dow Jones Industrial Average fell 0.3 per cent
•  The MSCI World index rose 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 per cent
• The euro was little changed at US$0.9878
• The British pound rose 0.1 per cent to US$1.1483
• The Japanese yen rose 0.3 per cent to 148.19 per dollar

Cryptocurrencies

• Bitcoin rose 0.2 per cent to US$20,445.94
• Ether rose 0.7 per cent to US$1,576.28

Bonds

• The yield on 10-year Treasuries was little changed at 4.05 per cent
• Germany’s 10-year yield declined one basis point to 2.13 per cent
• Britain’s 10-year yield declined five basis points to 3.47 per cent

Commodities

• West Texas Intermediate crude rose 2 per cent to US$88.27 a barrel
• Gold futures rose 0.6 per cent to US$1,651.30 an ounce