Stocks Rally as a Strong US Jobs Report Bolsters Soft-Landing Prospects

The S&P 500 Index ($SPX) (SPY) today is up by +0.71%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.52%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +1.19%.

Stocks rallied today as a stronger-than-expected US Sep payroll report bolstered the outlook for a soft landing.  However, the strong payroll report pushed the 10-year T-note yield to a 1-3/4 month high and reduced the chances of a -50 bp Fed rate cut at the November 6-7 FOMC meeting to 9% from 35% on Thursday. 

The prospect of escalating conflict in the Middle East has dampened the appetite for risk assets and is a negative factor for stocks. The US and its allies warned of “uncontrollable escalation” in the Middle East after Israel carried out bombing raids overnight near Beirut airport aimed at Hezbollah commanders and facilities.  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.” 

US Sep nonfarm payrolls rose +254,000, showing a stronger labor market than expectations of +150,000 and the largest increase in 6 months.  The Sep unemployment rate unexpectedly fell -0.1 to 4.1%, showing a stronger labor market than expectations of no change at 4.2%.

US Sep average hourly earnings rose +0.4% m/m and +4.0% y/y, stronger than expectations of +0.3% m/m and +3.8% y/y.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 9% for a -50 bp rate cut at that meeting.

Overseas stock markets today are higher.  The Euro Stoxx 50 is up by +0.35%.  China's Shanghai Composite is closed for the week-long National Day holiday.   Japan's Nikkei Stock 225 closed up by +0.22%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down by -27 ticks.  The 10-year T-note yield is up +12.1 bp at 3.967%.  Dec T-notes today fell to a 1-month low, and the 10-year T-note yield jumped to a 1-3/4 month high of 3.971%.  T-notes are sharply lower today as the US Sep payroll report showed a larger-than-expected increase in payrolls and a stronger-than-expected increase in average hourly earnings, a hawkish factor for Fed policy that substantially reduced the chances of a -50 bp Fed rate cut at next month’s FOMC meeting. Also, an increase in inflation expectations weighed on T-note prices after the 10-year breakeven inflation rate rose to a 2-month high today at 2.255%. 

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 1-month high of 2.239% and is up +7.3 bp at 2.217%.  The 10-year UK gilt yield rose to a 2-1/4 month high of 4.137% and is up +10.8 bp at 4.124%.

French Aug industrial production rose +1.4% m/m, stronger than expectations of +0.3% m/m and the largest increase in 15 months.

ECB Governing Council member Centeno said, "The dynamic of the labor market in the Eurozone is cooling a bit, and inflation is very close to 2%."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 90% for the October 17 meeting.

US Stock Movers

The strength in chip stocks today is supportive of the overall market.  Intel (INTC) is up more than +2% to lead gainers in the Dow Jones Industrials.  Also, Applied Materials (AMAT), Analog Devices (ADI), ON Semiconductor (ON), KLA Corp (KLAC), GlobalFoundries (GFS), and Texas Instruments (TXN) are up more than +2%.  In addition, Nvidia (NVDA), Micron Technology (MU), Marvell Technology (MRVL), and Lam Research (LRCX) are up more than +1%.

CVS Health Corp (CVS) is up more than +4% after TD Cowen upgraded the stock to buy from hold with a price target of $85. 

Vistra Corp (VST) is up more than +3% after BMO Capital Markets raised its target price on the stock to $146 from $125. 

Summit Therapeutics (SMMT) is up more than +6% after it said the FDA granted Fast Track designation for the use of its ivonescimab cancer drug in combination with platinum-based chemotherapy. 

Abercrombie & Fitch (ANF) is up more than +5% after the stock was added to JPMorgan Chase’s Positive Catalyst Watch with a price target of $195. 

Light & Wonder Inc (LNW) is up more than +3% after CEO Wilson said the company is targeting 2025 consolidated Ebitda of $1.4 billion and “sustainable growth” going forward. 

Willimas Cos (WMB) is up more than +1% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $58. 

CH Robinson Worldwide (CHRW) is up more than +1% after UBS upgraded the stock to buy from neutral with a price target of $140.  

Homebuilders are under pressure today after the 10-year T-note yield jumped to a 1-3/4 month high, a negative factor for housing demand.  As a result, DR Horton (DHI) is down more than -3%.  Also, Lennar (LEN), PulteGroup (PHM), and Toll Brothers (TOL) are down more than -2%.   

Shipping stocks are under pressure today, led by a -12% fall in ZIM Integrated Shipping Services (ZIM) after the US dockworkers strike was suspended, which should knock freight rates lower. 

Rivian Automotive (RIVN) is down more than -6% after cutting its full-year vehicle production forecast to 47,000-49,000 from a previous estimate of 57,000, below the consensus of 55,295. 

Verizon Communications (VZ) is down more than -1% to lead losers in the Dow Jones Industrials after MSCI ESG Research LLC cut its ESG rating on the company to A from AA. 

Warner Music Group (WMG) is down -0.60% after Bank of America Global Research downgraded the stock to underperform from neutral with a price target of $30.

Azek Co (AZEK) is down more than -2% after Loop Capital Markets downgraded the stock to hold from buy.   

Dine Brands Global (DIN) is down more than -4% after Truist Securities downgraded the stock to hold from buy. 

Earnings Reports (10/4/2024)

Apogee Enterprises Inc (APOG), Golden Matrix Group Inc (GMGI), Park Aerospace Corp (PKE), and Village Super Market Inc (VLGEA).

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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.