U.S. Indexes Fall: U.S. major indexes closed another losing week, despite a recovery on Friday following a tech-led Halloween sell-off. Treasury yields surged to four-month highs amid modest job growth in October, and volatility held firm heading into Tuesday’s election.
- S&P 500® (SPX): Up 0.41% to 5,728.80; weekly decline of 1.37%
- Dow Jones Industrial Average® ($DJI): Up 0.69% to 42,052.19; weekly decline of 0.15%
- Nasdaq Composite® ($COMP): Up 0.80% to 18,239.92; weekly decline of 1.50%
- 10-Year Treasury Yield: Rose to 4.36%, the highest since early July
- VIX: Held steady at 21.88
The market currently predicts an 82% probability of back-to-back cuts in November and December, yet Treasury yields rose after PCE data showed 2.7% annual growth, surpassing the 2.6% estimate. The 10-year Treasury yield added 13 basis points this week, driven partly by concerns over rising government spending.
October's Job Gains Hit 4-Year Low, Raising Fed Rate Cut Chances
U.S. indexes fall as revised data for August and September showed 112,000 fewer jobs, aligning with the Fed’s concern over a slowing labor market and possibly supporting more rate cuts at upcoming meetings. Futures markets now indicate an increased likelihood of rate cuts in November and December.
October job gains totaled 12,000, the weakest in nearly four years, affected by storms and strikes, far below the 113,000 forecasted. Unemployment remained at 4.1%. The establishment survey reported a “well below average” response rate due to hurricanes in the South.
October’s nonfarm payrolls showed stability in unemployment and a 0.4% hourly wage increase, indicating solid labor demand, though recent wage gains may fuel inflation. The ISM Manufacturing PMI declined to 46.5%, signaling contraction, marking the seventh consecutive month of declines.
MARKET DATA INDICATOR
October’s jobs steady, wages up, but manufacturing slows—mixed signals
October’s nonfarm payrolls: showed stability in unemployment and a 0.4% hourly wage increase, indicating solid labor demand, though recent wage gains may fuel inflation. The ISM Manufacturing PMI declined to 46.5%, signaling contraction, marking the seventh consecutive month of declines.
The mixed data—positive GDP and PCE, but weak jobs and manufacturing—offered insights for both bears and bulls. UK bond yield rises also influenced U.S. yields due to higher expected spending and inflation abroad.
Signs of a 'No Landing' Economy
- Job Growth Trends: While job growth has slowed (148,000 jobs per month through September compared to 267,000 earlier in the year), this deceleration aligns with the Federal Reserve’s goals for reducing inflation pressures.
- GDP and Earnings: The GDP grew at a solid 2.8% annual rate in Q3, and corporate earnings have been strong, with the S&P 500 companies reporting an 8.4% year-over-year earnings growth (11.2% excluding energy). Revenue grew by 4.8%, reflecting healthy corporate performance.
- Consumer Confidence: Consumer sentiment improved in October, with confidence indicators hitting highs not seen since early 2021, reflecting stability despite inflation concerns.
- Spending Patterns: JPMorgan Chase’s analysis reveals consumers are moderating some post-pandemic discretionary spending but remain active in other retail areas, contributing to a “no landing” economic scenario where strong growth persists.
- Interest Rates Outlook: Rising long-term Treasury yields indicate optimism about the economy’s resilience. While rate cuts are anticipated, the strong economy may reduce the need for them.
WATCHOUT
Big Tech Weakness Signals Caution for Broader Market Instability
U.S. indexes fall, but the S&P 500 still remains above its 50-day moving average near 5,700, after dipping below its 20-day average earlier. Meta, Microsoft, and Apple, among the top market cap stocks, are showing technical weaknesses, potentially impacting broader index performance. Earnings results for S&P 500 firms reporting this week have lifted FactSet’s Q3 EPS forecast to 5.1% from 3.6%. About 70% of companies have reported, with 75% surpassing EPS forecasts and 60% exceeding revenue expectations.
This weekend’s shift to Standard Time gives an extra hour to review earnings, including Berkshire Hathaway’s report on Monday, which investors will watch for stock buybacks, cash levels, and Apple stake details.
Election Uncertainty Likely to Increase Market Volatility
Election uncertainty could increase volatility, especially if results are delayed, potentially prompting a flight to safety in cash or Treasuries. Next week, markets focus on the election, the Fed meeting, and lighter data releases, with highlights like ISM Services PMI and the University of Michigan’s Consumer Sentiment report. Qualcomm (QCOM) earnings and Treasury auctions are also on the calendar.
The Fed’s November 6–7 meeting holds a 98% probability of a 25-basis-point rate cut, according to the CME FedWatch Tool.
Investment Opportunity & Risk
U.S. indexes fall as consumer discretionary and tech stocks led the day, with semiconductors bouncing back. Despite Intel’s boost, tech ended the week down over 3%. Defensive sectors underperformed as yields rose, and overall trading volume was average.
The GDP grew at a solid 2.8% annual rate in Q3, and corporate earnings have been strong, with S&P 500 companies reporting an 8.4% year-over-year earnings growth (11.2% excluding energy). Revenue grew by 4.8%, reflecting healthy corporate performance.
Amazon (AMZN)
Amazon (AMZN) rose 6.19%, while Apple (AAPL) dropped 1.16%, with contrasting guidance impacting reactions to earnings beats.
- PUT Volume: Higher volumes are observed at strikes around 160 and 180, which may indicate interest in protective PUTs or speculative bearish bets.
- CALL Volume: Significant volume is present around the 190–200 strike range, possibly reflecting bullish interest or hedging activities near the current price level.
- Imbalance in Volume: The CALL options around 190-200 strikes have notably higher volume compared to surrounding strikes, which could indicate a targeted interest by market participants to capitalize on a moderate upside.
There are speculations that the stock may exceed the $200 target.
Chevron (CVX)
Chevron (CVX) gained 2.84% on strong production results, despite a profit drop.
- Concentrated Volume for PUT Options: There’s a notable spike in PUT option volume around the 140 strike, indicating significant interest in downside protection or speculation on a decline near that level. This could signal that investors are positioning for a potential drop or are hedging at this price point.
- Limited CALL Volume: The CALL volume is generally low and spread thinly across the strikes, suggesting limited bullish sentiment or hedging activity on the upside. This might indicate that the market participants do not expect large upward movements in the near term or are less inclined to take bullish bets.
Intel (INTC)
Intel (INTC) soared nearly 8% on favorable earnings and guidance, despite a revenue drop and restructuring charges.
- The perspective is that of a strong sentiment that the stock will rise pass $22 with an intense push.
- The fear of a retracement back to lower prices is also clearly present but this picture presents itself as a struggle of hope against fear.
Boeing (BA)
Boeing (BA) surged 3.54% after offering machinists a new wage proposal.
- This show a generally more bullish perspective by the market even though at a low intensity.
- The market also doesn’t factor in a meaningful probability that the stock price will go through meaningful slide in the days till 2024-12-06.
CONCLUSION
- U.S. indexes fall for the week, with major indexes experiencing a decline despite a slight recovery on Friday, influenced by a tech-led sell-off
- Treasury yields reached four-month highs, indicating rising borrowing costs and concerns over economic conditions.
- October saw the lowest job gains in nearly four years, with only 12,000 jobs added, significantly underperforming expectations.
- Unemployment rate aligns with Federal Reserve concerns about a slowing labor market, potentially leading to more interest rate cuts.
- Market forecasts suggest an 82% probability of consecutive rate cuts in November and December, reflecting growing economic uncertainty.
- Contrary to expectations, rising Treasury yields were fueled by inflation, posing a challenge to the Fed’s rate cut plans.a
Please note that all information in this newsletter is for illustration and educational purposes only. It does not constitute financial advice or a recommendation to buy or sell any investment products or services.
About the Author
Rein Chua is the co-founder and Head of Training at AlgoMerchant. He has over 15 years of experience in cross-asset trading, portfolio management, and entrepreneurship. Major media outlets like Business Times, Yahoo News, and TechInAsia have featured him. Rein has spoken at financial institutions such as SGX, IDX, and ShareInvestor, sharing insights on the future of investing influenced by Artificial Intelligence and finance. He also founded the InvestPro Channel to educate traders and investors.
Rein Chua
Quant Trader, Investor, Financial Analyst, Vlogger, & Writer.
