Broader Market Under Pressure on Fed Rate Hike Concerns

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.21%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.11%.

Stocks this morning are mixed, with the Dow Jones Industrials falling to a 4-month low.  The broader market is under pressure today after bond yields jumped when the monthly U.S. payroll report showed Sep nonfarm payrolls surged +336,000, well above expectations of +170,000 and the most in eight months.  The strength in the U.S. labor market bolsters the chances that the Fed may boost interest rates at its next meeting in November. 

On the positive side, Pioneer Natural Resources is up more than +9% after Bloomberg News reported that Exxon Mobil is in talks to acquire the company. Also, strength in cybersecurity stocks is lifting the Nasdaq 100 into positive territory. 

U.S. Sep nonfarm payrolls surged +336,000, well above expectations of +170,000 and the most in eight months.  Also, Aug nonfarm payrolls were revised upward by 40,000 to +227,000 from the initially reported +187,000.  The Sep unemployment rate was unchanged at 3.8%, weaker than expectations of a decline to 3.7%. 

U.S. Sep average hourly earnings rose +0.2% m/m and +4.2% y/y, weaker than expectations of +0.3% m/m and +4.3% y/y.

The markets are discounting a 32% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 50% chance for that +25 bp rate hike at the following meeting that ends on December 13.  The markets are then expecting the FOMC to begin cutting rates in the second half of 2024 in response to an expected slowdown in the U.S. economy.

U.S. and European bond yields are moving higher.  The 10-year T-note yield rose to a 16-year high of 4.885% and is up +8.2 bp at 4.801%.  The 10-year German bund yield is up +2.5 bp at 2.902%.  The 10-year UK gilt yield is up +5.5 at 4.597%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.52%.  China’s Shanghai Composite Index was closed for the Golden Week holidays. Japan’s Nikkei 225 today closed -0.26%.

Today’s stock movers…

AES Corp (AES) is down more than -5% to lead losers in the S&P 500 after UBS downgraded the stock to neutral from buy.

Beverage and snack stocks are under pressure today after Walmart said it’s already seeing an impact on shopping demand from people taking Ozempic, Wegovy, and other appetite-suppressing medications.  As a result, Mondelez International (MDLZ) is down more than -5% to lead losers in the Nasdaq 100.  Also, Kellanova (K), JM Smucker (SJM), Kraft Heinz (KHC), Keurig Dr Pepper (KDP), McCormick & Co (MKC), and Hormel Foods (HRL) are down more than -3%. 

Walmart (WMT) and Costco Wholesale (COST) are down more than -3% after Walmart said it’s already seeing an impact on food shopping demand from people taking the diabetes drug Ozempic, Wegovy, and other appetite-suppressing medications. 

Telecommunications companies are falling today on concerns that the Federal Communications Commission will force the companies to build new networks in areas of the U.S. deemed digitally deprived.  As a result, Verizon Communications (VZ) is down more than -4% to lead losers in the Dow Jones Industrials.  Also, AT&T (T) is down more than -4%, and SBA Communications (SBAC) is down more than -2%.

Tesla (TSLA) is down more than -2% after it cut the price on its most popular cars in the U.S.

LCI Industries (LCII) is down more than -6% after DA Davidson downgraded the stock to underperform from neutral. 

Exxon Mobil (XOM) is down more than -2% after Bloomberg News reported the company is in talks to acquire Pioneer Natural Resources.

Levi Strauss (LEVI) is down more than -1% after reporting Q3 revenue of $1.51 billion, below the consensus of $1.54 billion, and cutting its full-year revenue forecast to 0% to +1% from a prior view of +1.5% to +2.5%. 

Pioneer Natural Resources (PXD) is up more than +9% to lead gainers in the S&P 500 after Bloomberg News reported that Exxon Mobil is in talks to acquire the company.

Strength in cybersecurity stocks is lifting the Nasdaq 100 into positive territory.  Crowdstrike Holdings (CRWD) and Zscaler (ZS) are up more than +4%.  Also, Datadog (DDOG) and Palo Alto Networks (PANW) are up more than +3%.

MarketAxess Holdings (MKTX) is up more than +5% after UBS initiated coverage of the stock with a buy recommendation and a price target of $285. 

MGM Resorts International (MGM) is up more than +2% after several analysts said the recent cyberattack on the company will have a limited impact on earnings going forward. 

U.S.-listed Chinese stocks are climbing today after the Shanghai Securities News reported that spending on China’s online platforms during the Golden Week holiday topped pre-pandemic levels. As a result, PDD Holdings (PDD) is up more than +6% to lead gainers in the Nasdaq 100.  Also, JD.com (JD), Alibaba Group Holding (BABA), Baidu (BIDU), and NetEase (NTES) are up more than +1%. 

Elf Beauty (ELF) is up more than +3% after Jeffries upgraded the stock to buy from hold with a price target of $115. 

Shoals Technologies Group (SHLS) is up more than +1% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $28.   

Eaton Corp Plc (ETN) is up more than +1% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $230.

Across the markets…

December 10-year T-notes (ZNZ23) this morning are down -19 ticks, and the 10-year T-note yield is up +8.2 bp at 4.801%.  Dec T-notes today retreated and are just above Wednesday’s 16-year nearest-futures low, although the 10-year T-note yield posted a new 16-year high of 4.885%.  Today’s larger-than-expected jump in U.S Sep nonfarm payrolls undercut T-notes and bolsters the chance of the Fed raising interest rates at the November 1 FOMC meeting.  On the positive side, U.S. Sep hourly earnings rose less than expected, easing concerns about wage pressures. 

The dollar index (DXY00) today is up by +0.35%.  Today’s stronger-than-expected U.S. Sep nonfarm payroll report pushed T-note yields higher and is bullish for the dollar.  The strength in the U.S. labor market also increases the chances of the Fed tightening monetary policy further, a bullish development for the dollar.  Weakness in stocks today also boosts liquidity demand for the dollar. 

EUR/USD (^EURUSD) today is down by -0.37%.  The euro today gave up overnight gains and is moderately lower as the dollar jumped on the stronger-than-expected U.S Sep payrolls report. The euro today initially moved higher on a stronger-than-expected German Aug factory orders report and on hawkish comments from ECB Executive Board member Schnabel, who said the ECB will continue to raise interest rates if inflation risks materialize.

German Aug factory orders rose +3.9% m/m, stronger than expectations of +1.5% m/m.

ECB Executive Board member Schnabel said, "I still see upside risks to inflation, and if they materialized, further interest rate hikes could be necessary."

USD/JPY (^USDJPY) is up by +0.57%.  The yen today is moderately lower as the better-than-expected U.S. Sep payrolls report pushed the dollar and T-note yields higher.  Also, today’s weaker-than-expected Japanese economic reports on Aug household spending and Aug labor cash earnings are dovish for BOJ policy and bearish for the yen.  A supportive factor for the yen was the larger-than-expected increase in the Aug leading index CI to a 9-month high.

Japan Aug household spending fell -2.5% y/y, a smaller decline than expectations of -3.9% y/y.

Japan Aug labor cash earnings rose +1.1% y/y, weaker than expectation of +1.5% y/y.

The Japan Aug leading index CI rose +1.3 to a 9-month high of 109.5, stronger than expectations of 109.1.

December gold (GCZ3) today is up +2.7 (+0.15%), and Dec silver (SIZ23) is up +0.401 (+1.91%). Precious metals prices this morning recovered from early losses and are moderately higher.  Precious metals moved higher as a slump in stocks today sparked some safe-haven demand for precious metals.  Silver also garnered support today from the stronger-than-expected German Aug factory orders report, a positive factor for industrial metals demand.  Today’s better-than-expected U.S. Sep payrolls report boosted the dollar and T-note yields and initially knocked gold prices down to a 7-month low.  Also, hawkish comments from ECB Executive Board member Schnabel weighed on gold when she said additional ECB rate hikes may be necessary if inflation risks materialize. In addition, long liquidation pressures are weighing on gold after long gold holdings in ETFs fell to a 3-1/2 year low on Thursday. 

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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.