The stock market rallied notably yesterday following a strong day of trading on Monday. Equities had been in the doldrums in recent weeks. The rally seems to have been kicked off by a decline in the interest rate on both short and long term U.S. Treasury notes. Some economic indicators, including the pace of manufacturing activity, are also showing additional signs of cooling. These factors have given equity traders some hope that the Federal Reserve may slow a bit on its pace of tightening as to short term interest rates. Some further support came when the Job Openings and Labor Turnover Survey (JOLTS) showed a decline of around one million job openings, which traders think may be a sign of slowing inflation, as strong labor demand has created inflation in wages. Overall, the S&P 500 rose 113 points yesterday; the NASDAQ climbed 361 points; and the Dow Jones Industrial Average finished higher by 825 points.
Several economic reports will affect trading today. The Automatic Data Processing (ADP) report on private-payroll creation showed that the U.S. economy added 208,000 jobs in September, largely at medium-sized businesses. This figure came in slightly higher than expected. Trade, transportation, and utility sectors added the bulk of the jobs, while financial services had the biggest job losses. Later in the day, the Institute for Supply Management’s Non-Manufacturing Activity Index, a survey of conditions in the services sector, is on the docket for release, giving investors a better view of inflation and how the economy is doing.
Market breadth was rather positive yesterday, as advancers outpaced decliners by a more than six-to-one ratio. All eleven sectors of the economy traded higher yesterday, though energy stocks were among the best performers, continuing a recent sharp move higher. On the other hand, consumer staples equities were among the weakest on a relative basis. Still, it should be noted that 99% of S&P 500 constituents rose during yesterday’s bullish session.
In commodity news, oil prices have moved higher ahead of a meeting of the Organization of Petroleum Exporting Countries (OPEC). Traders are predicting a cut in supply will be the outcome. Elsewhere, U.S. Treasury market yields are rising today after a sharp retreat in the last few days. Of note, the yields on short-term Treasury notes continue to exceed those of longer-duration Treasury bonds, but the spread narrowed a bit yesterday. Markets are largely pricing in a three-quarter-point hike to the benchmark short-term interest rate at the November Federal Open Market Committee (FOMC) meeting. The Chicago Board Options Exchange Volatility Index (or VIX) declined, as demand for options protection fell.
Several economic reports will be released in the days ahead. These include initial jobless claims on Thursday, while several regional Federal Reserve Presidents are slated to give remarks on the economy. The much-anticipated report on September employment and unemployment, which may well drive trading to end this week, is due on Friday. Meantime, a few earnings reports will be released later this week, though reports will pick up substantially in the weeks ahead, as third-quarter earnings season unofficially kicks off with the release of quarterly results from banking giant JPMorgan Chase (JPM) on October 14th. Overall, we think most eyes will be on the economic data releases this week. - 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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