Stocks Weaken on Middle East Tensions

The S&P 500 Index ($SPX) (SPY) today is down by -0.36%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.41%.

Stocks today are moderately lower as flaring tensions in the Middle East continue to weigh on stocks.  The markets are awaiting Israel’s response to Tuesday’s missile barrage from Iran after Israeli Prime Minister Netanyahu vowed to retaliate, saying Iran “made a big mistake” and “will pay.” His comments sent crude prices soaring another +3% today to a 1-week high and threatened to escalate hostilities even further in the region.  Stock indexes remained lower after the Sep ADP employment showed US employers added more jobs than expected, which pushed bond yields higher and is hawkish for Fed policy. 

US MBA mortgage applications fell -1.3% in the week ended September 27, with the purchase mortgage sub-index up +0.7% and the refinancing sub-index down -2.9%.  The average 30-year fixed rate mortgage rose +1 bp to 6.14% from 6.13% in the prior week. 

The US Sep ADP employment change rose +143,000, showing a stronger labor market than expectations of +125,000.

The markets are looking ahead to Friday's monthly US payroll report for market direction.  Sep nonfarm payrolls are expected to climb +146,000, and the Sep unemployment rate is expected to remain unchanged at 4.2%.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 36% for a -50 bp rate cut at that meeting.

Overseas stock markets today are lower.  The Euro Stoxx 50 is down by -0.17%.  China's Shanghai Composite is closed for the week-long National Day holiday.   Japan's Nikkei Stock 225 fell to a 1-1/2 week low and closed down by -2.18%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down by -13 ticks.  The 10-year T-note yield is up +7.2 bp at 3.804%.  Dec T-notes today moved lower after the Sep ADM employment report showed US companies added more jobs than expected, a hawkish factor for Fed policy.  T-notes are also under pressure from an increase in inflation expectations after the 10-year breakeven inflation rate rose to a 2-month high today of 2.214%.  Losses in T-notes are limited as heightened geopolitical risks in the Middle East still support safe-haven demand for T-notes.

European government bond yields today are moving higher.  The 10-year German bund yield is up +6.3 bp at 2.099%.  The 10-year UK gilt yield rose to a 1-month high of 4.034% and is up +9.1 bp at 4.032%.

ECB Vice President Guindos said the economic revival in the Eurozone is likely to gain momentum, though risks are still "tilted to the downside."

ECB Governing Council member Kazaks said, "Recent data clearly point in the direction of an interest rate cut as the risks to the Eurozone economy have become more pronounced and the risks of still sticky inflation and too-weak growth are increasingly balanced with some tilt towards weak growth."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 96% for the October 17 meeting.

US Stock Movers

Humana (HUM) is down more than -22%, adding to Tuesday’s -11% plunge, on continued troubles for its Medicare Advantage plan that threatens to reduce revenue. 

Nike (NKE) is down more than -6% to lead losers in the Dow Jones Industrials after reporting Q1 revenue of $11.59 billion, below the consensus of $11.65 billion, and withdrawing its full-year guidance. 

Conagra Brands (CAG) is down more than -7% after reporting Q1 net sales of $2.79 billion, weaker than the consensus of $2.84 billion.

MercadoLibre (MELI) is down more than -5% to lead losers in the Nasdaq 100 after JPMorgan Chase downgraded the stock to neutral from overweight.

Tesla (TSLA) is down more than -3% after reporting Q3 deliveries of 462,890, below expectations of 463,897.

Harley-Davidson (HOG) is down more than -3% after Baird downgraded the stock to neutral from outperform.

Lamb Weston Holdings (LW) is down more than -1% after forecasting 2025 adjusted EPS of $4.15-$4.35, weaker than the consensus of $4.42. 

GE Vernova (GEV) is down more than -1% after Raymond James downgraded the stock to market perform from outperform. 

Energy stocks are climbing for a second day, with WTI crude up more than +3% at a 1-week high.  As a result, APA Corp (APA), Devon Energy (DVN), Marathon Oil (MRO), ConocoPhillips (COP), Halliburton (HAL), Diamondback Energy (FANG), Exxon Mobil (XOM), Schlumberger (SLB), and Chevron (CVX) are up more than +1%. 

Caesars Entertainment (CZR) is up more than +4% to lead gainers in the S&P 500 after announcing a $500 million stock buyback program.

Salesforce (CRM) is up more than +1% to lead gainers in the Dow Jones Industrials after Northland Securities upgraded the stock to outperform from market perform with a price target of $400.

Science Applications International (SAIC) is up more than +1% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $170. 

Tandem Diabetes Care (TNDM) is up more than +1% after RBC Capital Markets initiated coverage on the stock with a recommendation of outperform and a price target of $65. 

Sphere Entertainment (SPHR) is up more than +3% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $60. 

Earnings Reports (10/2/2024)

Conagra Brands Inc (CAG), Novagold Resources Inc (NG), Renovaro Inc (RENB), RPM International Inc (RPM).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.