Stock market futures are trading in the green this morning on the heels of Tuesday’s sharp selloff. Futures rose after the release of employment news this morning, continuing a rebound from oversold conditions in the broader market and suggesting a positive start to the trading day.
Headline economic news, the Automatic Data Processing (ADP) Payroll report for September, was released this morning. Payrolls increased by only 89,000 positions and missed economists' expectations. The report indicated services sector jobs increased by 80,000, with the majority of hiring occurring at small- and medium-sized businesses. Additionally, wage gains moderated, with salaries rising 5.9% for job stayers and 9.0% for those who changed jobs. This news follows a strong JOLTS (Job Openings and Labor Turnover Survey) report yesterday (more below).
Several economic reports will be released once the trading session begins, including the S&P final Services Purchasing Managers' Index for September, factory orders, and the Institute for Supply Management's Services Index, which could affect trading later today.
The stock market traded sharply lower on Tuesday, with selling accelerating following the Labor Department's JOLTS report that showed job openings increased to 9.6 million in August. The employment picture has been stronger than expected despite tightening monetary policy, and the outperformance has increased traders’ fears about Federal Reserve policy remaining restrictive for longer. The 10-year bond sold off and yields eclipsed 4.8%, which is a level not seen since 2007. Additionally, U.S. politics played a role in the decline, as the U.S. Speaker of the House was ousted from his leadership position yesterday, which increases uncertainty about future fiscal policy. This development appears likely to lead to a tighter leash on government spending. Stock selling continued through the day, and the markets ended near their lows. Overall, the S&P 500 fell 59 points (down 1.37%), the NASDAQ declined 248 points (down 1.87%), and the Dow Jones Industrial Average declined 431 points (down 1.29%).
Market breadth was rather negative, as decliners outpaced advancers by a 5.2-to-1.0 ratio. Utility stocks were among the best performers, finishing in the green following a significantly oversold condition. On the other hand, consumer discretionary equities were amongst the worst performers. In commodity news, oil prices were lower yesterday as traders sold off the fuel source alongside the stock market, on fears that weakening economic conditions would hurt demand.
Elsewhere, U.S. Treasury bond yields were higher across the board, though long-term yields rose more than those with shorter durations. The Chicago Board Options Exchange Volatility Index or VIX, also known as the fear index, rose considerably yesterday to near highs not seen since this past May, as traders rushed in to purchase options protection.
A few key economic reports are due to be released in the days ahead. These include initial jobless claims and the U.S. trade deficit on Thursday. On Friday, the U.S. employment report and hourly wages for September will be reported. Additionally, several members of the Federal Reserve Board of Governors and regional Fed Presidents will give remarks on the banking system and the broader economy in the days ahead. A few dozen companies will also report quarterly earnings, though earnings season will pick up considerably next week with several large banks slated to report results. - John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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