Closing Stock Market Summary
The major indices closed out the session near their highs, which had the S&P 500 (+1.2%) above the 4,300 level. The Nasdaq Composite, Russell 2000, and Dow Jones Industrial Average climbed 1.6%, 1.0%, and 0.9%, respectively.
Things looked different at the open, however, with stocks moving lower after a sharp move higher in Treasury yields. The 2-yr yield and 10-yr yield hit 5.13% and 4.87%, respectively, as participants eyed a much stronger-than-expected nonfarm payrolls gain of 336,000 (consensus 158,000) for September and ruminated over how that payroll strength might affect Fed policy.
Additionally, the nonfarm payrolls number for September was accompanied by upward revisions to July and August data that summed to 119,000 more jobs than previously thought.
The fed funds futures market now sees a 31.8% probability of another rate hike in November, up from 20.1% yesterday, and a 42.6% probability of another rate hike in December, up from 33.1% yesterday, according to the CME FedWatch Tool.
Treasury yields quickly pulled back from their post-employment report highs, however, due presumably to a sense that the bond market was oversold in the short-term and as participants found a bit of a silver lining in the understanding that average hourly earnings growth moderated to 4.2% year-over-year from 4.3% in August. The 2-yr note yield settled at 5.06%, which was still three basis points higher than yesterday. The 10-yr note yield rose seven basis points to 4.78%.
With Treasury yields coming off their highs, stocks reacted favorably, staging their own reversal that was likely helped by some short-covering activity. The mega cap stocks led the recovery, evidenced by a 1.7% gain in the Vanguard Mega Cap Growth ETF (MGK), but market breadth saw advancers move comfortably ahead of decliners as the rebound gained steam. Ten of the 11 S&P 500 sectors registered gains. The heavily-weighted information technology sector (+1.9%) led the pack while the consumer staples sector (-0.5%) was alone in the red.
As a reminder, the Treasury market will be closed on Monday for the Columbus Day holiday, which is also referred to as Indigenous Peoples' Day.
- Nasdaq Composite: +28.3% YTD
- S&P 500: +12.2% YTD
- S&P Midcap 400: +1.0% YTD
- Dow Jones Industrial Average: +0.8% YTD
- Russell 2000: -0.9% YTD
Reviewing today's economic data:
- September Nonfarm Payrolls 336K ( consensus 158K); Prior was revised to 227K from 187K; September Nonfarm Private Payrolls 263K ( consensus 150K); Prior was revised to 177K from 179K; September Avg. Hourly Earnings 0.2% ( consensus 0.3%); Prior 0.2%; September Unemployment Rate 3.8% ( consensus 3.7%); Prior 3.8%; September Average Workweek 34.4 ( consensus 34.4); Prior 34.4
- The key takeaway from the report is that it bodes well for the economy. That is good news, yet that good news is apt to translate in the market's mind into a stubborn Fed standing on guard to possibly raise rates again but certainly not cut them anytime soon.
- Consumer credit decreased by $15.6 bln in August (Briefing.com consensus $12.0 bln) after increasing an upwardly revised $11.0 bln (from $10.4 bln) in July.
- The key takeaway from the report is that nonrevolving credit saw the biggest drop since December 2015, reflecting the tighter lending standards and reduced borrowing needs in the face of higher interest rates.
Looking ahead, there is no U.S. economic data of note on Monday.