Stocks Finish Mostly Lower Ahead of Friday’s US Payroll Report

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.30%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.54%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.05%.

Stocks on Thursday settled mostly lower, with the S&P 500 falling to a 2-week low and the Dow Jones Industrials dropping to a 2-1/2 week low. Signs of weakness in the US labor market have fueled growth concerns and were negative for stocks Thursday after the Aug ADP employment change showed employers added the fewest jobs in 3-1/2 years. Stocks also came under pressure after the Aug ISM services index unexpectedly increased, a hawkish factor for Fed policy.

Stocks found support Thursday from a fall in the 10-year T-note yield to a 1-month low.  Also, an upward revision to US Q2 nonfarm productivity and a downward revision to Q2 unit labor costs were dovish factors for Fed policy and supportive for stocks.

The US Aug ADP employment change rose +99,000, weaker than expectations of +145,000 and the smallest increase in 3-1/2 years.

US weekly initial unemployment claims fell -5,000 to 227,000, showing a slightly stronger labor market than expectations of 230,000.

US Q2 nonfarm productivity was revised upward to +2.5% from +2.3%, right on expectations.  Q2 unit labor costs were revised lower to +0.4% from +0.9%, better than expectations of +0.8%.

The US Aug ISM services index unexpectedly rose +0.1 to 51.5, stronger than expectations of no change at 51.4.

After Thursday’s weaker-than-expected US Aug ADP employment report, all eyes will be on Friday’s monthly payroll report that will offer insight into the health of the US economy and help determine the path of the Fed’s interest rate policy.  Friday’s monthly payroll report is expected to show Aug nonfarm payrolls rose +165,000 from +114,000 in July, and the Aug unemployment rate is expected to ease to 4.2% from 4.3% in July.

The markets are discounting the chances at 100% for a -25 bp rate cut for the September 17-18 FOMC meeting and at 38% for a -50 bp rate cut at that meeting.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 fell to a 2-1/2 week low and closed down -0.68%.  China's Shanghai Composite recovered from a 6-3/4 month low and closed up +0.14%.  Japan's Nikkei Stock 225 fell to a 3-week low and closed down by -1.05%.

Interest Rates

December 10-year T-notes (ZNZ24) Thursday closed up +6 ticks.  The 10-year T-note yield fell -3.0 bp to 3.725%.  Dec T-notes Thursday rallied to a 1-month high, and the 10-year T-note yield fell to a 1-month low of 3.719%.  T-note prices Thursday moved higher on signs of weakness in the US labor market after the Aug ADP employment change rose by the least in 3-1/2 years.  T-notes also garnered support from an upward revision to US Q2 nonfarm productivity and a downward revision to Q2 unit labor costs.  In addition, a decline in inflation expectations was bullish for T-notes after the 10-year breakeven inflation rate fell to a 1-month low Thursday of 2.035%.  Gains in T-notes were limited after the Aug ISM services index unexpectedly increased, a hawkish factor for Fed policy. 

European government bond yields Thursday moved lower.  The 10-year German bund yield fell to a 2-week low of 2.192% and finished down -1.6 bp to 2.208%.  The 10-year UK gilt yield fell to a 2-week low of 3.898% and finished down -2.0 bp to 3.915%.

Eurozone July retail sales rose +0.1% m/m, weaker than expectations of +0.2% m/m.

German July factory orders unexpectedly rose +2.9% m/m, stronger than expectations of a -1.7% m/m decline.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the September 12 meeting.

US Stock Movers

McKesson (MCK) closed down more than -9% to lead losers in the S&P 500 after forecasting 2025 adjusted EPS of $6.70-$7.00, well below the consensus of $7.37. 

Zimmer Biomet Holdings (ZBH) closed down more than -8% after CEO Tornos said the company expects a software issue to hurt revenue in the second half of 2024.

Copart (CPRT) closed down more than -6% to lead losers in the Nasdaq 100 after reporting Q4 operating income of $359.5 million, weaker than the consensus of $411.8 million. 

Hewlett Packard Enterprise (HPE) closed down more than -6% after reporting Q3 adjusted gross margin of 31.8%, weaker than the consensus of 33.4%. 

Old Dominion Freight Line (ODFL) closed down more than -4% after reporting less-than-truckload (LTL) tonnage per day in August fell -6.1% versus a year ago. 

Managed healthcare stocks were under pressure Thursday after commentators at the Wells Fargo Healthcare Conference said healthcare companies are still seeing pressure in Medicaid business as states continue to prune enrollment.  As a result, Cigna Group (CI) closed down more than -3%, and Cardinal Health (CAH) closed down more than -2%.  Also, Humana (HUM) and UnitedHealth Group (UNH) closed down more than -1%.  In addition, Centene (CNC) closed down -0.79%, and Elevance Health (ELV) closed down -0.50%.

Verint Systems (VRNT) closed down more than -11% after reporting Q2 adjusted EPS of 49 cents, below the consensus of 53 cents. 

XPO Inc (XPO) closed down more than -9% after reporting less-than-truckload (LTL) tonnage per day in August fell -4.6% versus a year ago. 

MarketAxess Holdings (MKTX) closed up more than +6% after reporting Aug trading volume of $41.6 billion and a 27% growth in total credit ADV year-over-year.

Tesla (TSLA) closed up more than +4% to lead gainers in the Nasdaq 100 after announcing plans to launch its Full Self Driving system in China and Europe in Q1 of next year, pending regulatory approvals.   

Amazon.com (AMZN) closed up more than +2% to lead gainers in the Dow Jones Industrials after Cantor Fitzgerald initiated coverage on the stock with a recommendation of overweight with a price target of $230. 

Airline stocks rose Thursday on speculation that lower jet fuel costs will boost profit margins after crude prices tumbled to an 8-3/4 month low.  As a result, Alaska Air Group (ALK) closed up more than +4%, and United Airlines Holdings (UAL) closed up more than +2%.  Also, American Airlines Group (AAL) and Southwest Airlines (LUV) closed up more than +1%.

Roku (ROKU) closed up more than +4% after Wells Fargo Securities upgraded the stock to equal weight from underweight. 

Beazer Homes USA (BZH) closed up more than +3% after Wedbush upgraded the stock to outperform from neutral with a price target of $45. 

CME Group (CME) closed up more than +1% after Citigroup put the stock on a 90-day upside catalyst watch ahead of an expected dividend announcement in December.

Fortive Corp (FTV) closed up more than +1% after announcing plans to spin off its Precision Technologies segment and create two independent publicly traded companies.   

Earnings Reports (9/6/2024)

ABM Industries Inc (ABM), Compass Minerals International (CMP), Genesco Inc (GCO), Golden Matrix Group Inc (GMGI), National Beverage Corp (FIZZ), RH (RH).

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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.