Stocks Routed as Strong U.S Jobs Report Keeps Aggressive Fed in Play

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed down -2.80%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -2.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -3.88%.

Stocks on Friday sold off sharply after bond yields jumped when Friday’s economic news showed U.S. Sep nonfarm payrolls rose more than expected and the Sep unemployment rate unexpectedly declined. The stronger-than-expected payroll report will keep the pressure on the Fed to keep aggressively raising interest rates.  As a result, the 10-year T-note yield jumped to a 1-week high of 3.906%. 

A slump in chip stocks Friday also pressured the overall market, with Advanced Micro Devices closing down more than -13% after it reported Q3 revenue of $5.6 billion, well below the consensus of $6.71 billion, citing weak PC sales and a build-up of inventory in the supply chain.  The sell-off in chip stocks spread to Europe and Asia after Samsung Electronics Friday also reported disappointing Q3 earnings. 

U.S Sep nonfarm payrolls rose +263,000, stronger than expectations of +255,000.  The U.S. Sep unemployment rate unexpectedly fell -0.2 to 3.5%, stronger than expectations of no change at 3.7%.

U.S. Sep average hourly earnings rose +0.3% m/m and +5.0% y/y, right on expectations.

U.S. Aug consumer credit rose +$32.24 billion, stronger than expectations of +$25.00 billion.

Comments Friday from New York Fed President Williams were hawkish for Fed policy and bearish for stocks when he said, "we need to get interest rates up further" and that the Fed needs to raise the fed funds rate to around 4.50% over time.

Today’s stock movers…

Chip stocks plunged Friday and weighed on the overall market after Advanced Micro Devices reported Q3 revenue of $5.6 billion, well below the consensus of $6.71 billion, citing weak PC sales and a build-up of inventory in the supply chain.  Advanced Micro Devices (AMD) closed down more than -13% to lead losers in the S&P 500 and the Nasdaq 100.  Also, Marvell Technology (MRVL) closed down more than -11%, and Nvidia (NVDA) closed down more than -8%.   In addition, ON Semiconductor Corp (ON) closed down more than -7%, and Applied Materials (AMAT) and ASML Holding NV (ASML) closed down more than -6%.  Finally, Lam Research (LRCX) closed down more than -5%, and Intel (INTC) closed down more than -5% to lead losers in the Dow Jones Industrials.

Computer and software stocks retreated Friday as AMD’s weak earnings report signals weak PC demand. Okta (OKTA) closed down more than -7%, and Ansys (ANSS) closed down more than -6%.  Also, Microsoft (MSFT), HP Inc (HP), Autodesk (ADSK), Cadence Design Systems (CDNS), and F5 Inc (FFIV) closed down more than -5%. 

CVS Health (CVS) closed down more than -10% Friday after it said the percentage of Aetna Medicare Advantage members in 4+ Star plans is expected to drop to 21% from 87% y/y.

Walgreens Boots Alliance Intel (WBA) closed own more than -5% Friday after Mizuho Securities cut its target price on the stock to $36 from $49.

A rally in WTI crude oil Friday to a 5-week high boosted energy stocks and energy service providers. Haliburton (HAL) closed up more than +2%, and Coterra Energy (CTRA) closed up more than +1%.  Also, APA Corp (APA) and ConocoPhillips (COP) closed up more than +0.7%.  In addition, Schlumberger (SLB) closed up more than +0.2%.

Dexcom (DXCM) closed up more than +7% Friday to lead gainers in the S&P 500 and Nasdaq 100 after the Centers for Medicare and Medicaid Services late Thursday proposed a local coverage decision to expand coverage of continuous glucose monitoring devices.

PG&E Corp (PCG) closed up more than +2% Friday after RBC Capital Markets raised its price target on the stock to $19 from $16.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Friday closed down -14.5 ticks, and the 10-year T-note yield rose +5.9 bp to 3.883%.  Dec T-notes Friday fell to a 1-week low, and the 10-year T-note yield rose to a 1-week high of 3.906%.  Friday’s stronger-than-expected U.S. Sep payroll report knocked T-note prices lower and will keep aggressive Fed rate hikes in play.  Also, an increase in inflation expectations weighed on T-note prices after the 10-year breakeven inflation rate rose to a 1-week high Friday at 2.287%.  T-note prices recovered from their worst levels Friday after a sharp sell-off in stocks sparked some safe-haven buying of T-notes.

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