Middle East Fears Weigh on Stocks
The S&P 500 Index ($SPX) (SPY) today is down by -1.04%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.72%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -1.52%.
Stocks today are trading lower, with the S&P 500 and Nasdaq 100 posting 1-week lows. Escalating Middle East tensions have sparked long liquidation pressure in stocks. Israel began a limited ground assault into Lebanon, and US intelligence said that Iran is preparing to launch a ballistic missile attack against Israel. Today’s US economic news was mixed for stocks as Aug JOLTS job openings rose more than expected, but the Sep ISM manufacturing index was weaker than expected.
The US Aug JOLTS job openings rose +329,000 to 8.04 million, showing a stronger labor market than expectations of 7.693 million.
The US Sep ISM manufacturing index was unchanged from Aug at 47.2, weaker than expectations of an increase to 47.5. The Sep ISM prices paid sub-index fell -5.7 to a 9-month low of 48.3, weaker than expectations of 53.5.
US Aug construction spending unexpectedly fell -0.1% m/m, weaker than expectations of +0.2% m/m.
Corporate news today is mixed for stocks. Apple is down more than -3% after Barclays said availability for iPhone 16 suggests “softer demand” relative to last year. Also, ZIM Integrated Shipping Services Ltd is down more than -7% after dockworkers began a strike and walked out of every major port in the US East and Gulf coasts. On the positive side, energy stocks are climbing after WTI crude oil surged more than +3% today on Middle Esat tensions. Also, the escalation of Middle East tensions is boosting defense stocks.
Signs of easing global inflation are pushing bond yields lower and are supporting stocks after the Eurozone Sep CPI eased to 1.8% y/y, below the ECB’s 2.0% target and the smallest increase in almost 3-1/2 years.
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 39% for a -50 bp rate cut at that meeting.
Overseas stock markets today are mixed. The Euro Stoxx 50 is down by -1.32%. China's Shanghai Composite is closed for the week-long National Day holiday. Japan's Nikkei Stock 225 closed up by +1.93%.
Interest Rates
December 10-year T-notes (ZNZ24) today are up +18 ticks. The 10-year T-note yield is down -6.5 bp at 3.716%. Dec T-notes rallied to a 1-week high today, and the 10-year T-note yield fell to a 1-week low of 3.694%. T-notes are climbing today on carryover support from a rally in 10-year German bunds to an 8-3/4 month high. Easing US price pressures are also bullish for T-notes after the Sep ISM prices paid sub-index fell -5.7 points to a 9-month low of 48.3. Gains in T-notes accelerated today after US intelligence said that Iran is preparing to imminently launch a ballistic missile attack against Israel, which boosted safe-haven demand for T-notes.
European government bond yields today are lower. The 10-year German bund yield fell to an 8-3/4 month low of 2.010% and is down -8.8 bp at 2.035%. The 10-year UK gilt yield fell to a 1-week low of 3.913% and is down -6.7 bp at 3.936%.
The Eurozone Sep S&P manufacturing PMI was revised upward by +0.2 to 45.0 from the previously reported 44.8.
The Eurozone Sep CPI eased to +1.8% y/y from +2.2% y/y in Aug, right on expectations and the slowest pace of increase in almost 3-1/2 years. Sep core CPI eased to +2.7% y/y from +2.8% y/y in Aug, right on expectations.
ECB Governing Council member Rehn said easing inflation pressures and a deteriorating Eurozone economy support the case for the ECB to cut interest rates this month.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 93% for the October 17 meeting.
US Stock Movers
Weakness in chip stocks is weighing on the overall market. Applied Materials (AMAT), GlobalFoundries (GFS), and Micron Technology (MU) are down more than -3%. Also, Nvidia (NVDA), Analog Devices (ADI), Intel (INTC), Microchip Technology (MCHP), KLA Corp (KLAC), NXP Semiconductors NV (NXPI), Qualcomm (QCOM), and Texas Instruments (TXN) are down more than -2%.
Apple (AAPL) is down more than -3% to lead losers in the Dow Jones Industrials after Barclays said availability for iPhone 16 suggests “softer demand” relative to last year.
ZIM Integrated Shipping Services Ltd (ZIM) is down more than -7% after dockworkers began a strike and walked out of every major port in the US East and Gulf coasts.
HP Inc (HPQ) and CDW Corp (CDW) are down more than -4% after Citigroup downgraded the stocks to neutral from buy.
Dell Technologies (DELL) is down more than -3% on signs of insider selling after an SEC filing showed CEO and founder Michael Dell sold $1.2 billion of stock last Thursday.
Charles River Laboratories International (CRL) is down more than -1% after Citigroup downgraded the stock to sell from neutral with a price target of $175.
Antero Resources (AR) is down more than -1% after Wells Fargo Securities double-downgraded the stock to underweight from overweight with a price target of $25.
Energy stocks are climbing today, with WTI crude soaring more than +3%. As a result, APA Corp (APA) is up more than +4% to lead gainers in the S&P 500. Also, Occidental Petroleum (OXY), Marathon Oil (MRO), ConocoPhillips (COP), Diamondback Energy (FANG), Exxon Mobil (XOM), and Schlumberger (SLB) are up more than +2%. In addition, Chevron (CVX) is up more than +1% to lead gainers in the Dow Jones Industrials.
The escalation of Middle East tensions today is boosting defense stocks. Northrop Grumman (NOC) and Lockheed Martin (LMT) are up more than +3%. Also, L3Harris Technologies (LHX) and RTX Corp (RTX) are up more than +2%.
Paychex (PAYX) is up more than +3% to lead gainers in the Nasdaq 100 after reporting Q1 adjusted EPS of $1.16, better than the consensus of $1.14.
Ford Motor (F) is up +0.52% after it said it is in talks to manufacture electric vehicles at its plant in southern India.
Steel Dynamics (STLD) is up +0.89% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $155.
Earnings Reports (10/1/2024)
Acuity Brands Inc (AYI), Lamb Weston Holdings Inc (LW), McCormick & Co Inc/MD (MKC), NIKE Inc (NKE), Paychex Inc (PAYX).
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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.
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