Stocks End Slightly Lower Ahead of Friday’s Monthly U.S. Payroll Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed down -0.13%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.03%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.36%.

Stocks on Thursday posted modest losses ahead of Friday’s monthly U.S. payrolls report.  An easing of T-note yields was supportive for stocks, although the decline in yields was limited after weekly jobless claims rose less than expected, a sign of labor market strength that is hawkish for Fed policy.  Stocks also found support on the U.S. Aug trade report that showed the trade deficit narrowed more than expected to a 3-year low, a positive development for GDP.

After Wednesday’s smaller-than-expected increase in the U.S. Sep ADP employment change, market attention will focus on Friday’s monthly U.S. report that is expected to show Sep nonfarm payrolls rose by +170,000 and the Sep unemployment rate fell by -0.1 to 3.7%. 

U.S. weekly initial unemployment claims rose +2,000 to 207,000, showing a stronger labor market than expectations of 210,000.  Weekly continuing claims unexpectedly fell -1,000 to 1.664 million, showing a stronger labor market than expectations of an increase to 1.671 million.

The U.S. Aug trade deficit shrank to a 3-year low of -$58.3 billion from -$64.7 billion in July, a narrower deficit than expectations of -$59.8 billion. 

Dovish comments from San Francisco Fed President Daly supported stocks when she said, "If we continue to see a cooling labor market and inflation heading back to our target, we can hold interest rates steady and let the effects of policy continue to work."

The markets are discounting a 22% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 35% chance for that +25 bp rate hike at the following meeting that ends on December 13.  The markets are then expecting the FOMC to begin cutting rates in the second half of 2024 in response to an expected slowdown in the U.S. economy.

U.S. and European bond yields on Thursday moved lower.  The 10-year T-note yield fell -1.9 bp to 4.711%. The 10-year German bund yield fell -4.2 bp to 2.878%.  The 10-year UK gilt yield fell -3.8 to 4.542%. 

ECB Vice President de Guindos said that given still strong inflation, it is "premature" to discuss a potential reduction of interest rates.

German Aug exports fell -1.2% m/m, weaker than expectations of -0.6% m/m.  Also, Aug imports unexpectedly fell -0.4% m/m versus expectations of a +0.5% m/m increase.

The German Sep S&P construction PMI fell -2.2 to 39.3, the steepest pace of contraction since the data series began in 2020.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 was unchanged.  China’s Shanghai Composite Index was closed for the Golden Week holidays.  Japan’s Nikkei 225 closed +1.80%.

Today’s stock movers…

Beverage and snack stocks tumbled on concern rising inflation will curb consumption and dent profit margins.  As a result, Molson Coors Beverage (TAP) closed down more than -6% to lead losers in the S&P 500.  Also, Mondelez International (MDLZ) and PepsiCo (PEP) closed down more than -5%. In addition, Keurig Dr Pepper (KDP) and Monster Beverage (MNST) closed down more than -4%.   Finally, Cocoa-Cola (KO) closed down more than -4% to lead losers in the Dow Jones Industrials.

Clorox (CLX) closed down more than -5% after saying preliminary net sales fell by 23% to 28% in the quarter ended September 30 after a cyberattack disrupted production.

Zebra Technologies (ZBRA) closed down more than -3% after BNP Paribas Exane initiated coverage of the stock with a recommendation of underperform and a price target of $183.

Constellation Brands (STZ) closed down more than -3% after it reported Q2 comparable net sales of $2.84 billion, above the consensus of $2.83 billion.  However, Wells Fargo Securities said that while the performance was good, it was “not good enough.”

Rivian Automotive (RIVN) closed down more than -22% after announcing plans to issue $1.5 billion in convertible debt.

Resources Connection (RGP) closed down more than -6% after reporting Q1 revenue of $170.2 million, below the consensus of $170.5 million. 

Airbnb (ABNB) closed down more than -1% on signs of insider selling after an SEC filing showed CAO Bernstein sold $1.89 million of shares on Monday.

Lamb Weston Holdings (LW) closed up more than +8% to lead gainers in the S&P 500 after reporting Q1 adjusted EPS of $1.63, well above the consensus of $1.07.

Ceridian HCM Holding (CDAY) closed up more than +2% after Needham upgraded the stock to buy from hold with a price target of $82.

Western Digital (WDC) and Micron Technology (MU) closed up more than +1% after the Maeil Business Newspaper said that Samsung Electronics would raise NAND memory chip prices by more than +10% as soon as this month.

Carnival (CCL) closed up more than +1% after Shore Capital Stockbrokers upgraded the stock to hold from sell.

Johnson & Johnson (JNJ) closed up more than +1% after RBC Capital Markets initiated coverage on the stock with a recommendation of outperform and a price target of $178. 

Orchard Therapeutics ADRs (ORTX) closed up more than +95% after Kyowa Kirin agreed to acquire the company for $387.4 million or $16 per American depository share. 

Chubb Ltd (CB) closed up more than +1% after Deutsche Bank reinstated coverage of the stock with a buy recommendation and a price target of $269. 

Across the markets…

December 10-year T-notes (ZNZ23) Thursday closed up +6.5 ticks.  The 10-year T-note yield fell -1.9 bp to 4.711%.  Dec T-notes Thursday recovered from early losses and closed moderately higher.  Dovish comments from San Francisco Fed President Daly boosted T-notes when she said the Fed could hold interest rates steady if the labor market and inflation continue to cool.  Also, easing inflation expectations supported T-notes after the 10-year breakeven inflation rate fell to a 1-month low of 2.301%.  T-notes briefly moved lower Thursday morning after weekly jobless claims rose less than expected, a sign of labor market strength. 

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