Stocks Trim Losses as Drug Makers Rally

The S&P 500 Index ($SPX) (SPY) today is down -0.08%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.02%.  December E-mini S&P futures (ESZ25) are down -0.05%, and December E-mini Nasdaq futures (NQZ25) are down -0.03%.

Stock indexes are mixed today, as the broader market is under pressure due to the US government shutdown after lawmakers failed to pass a continuing resolution to fund the government.  The dollar index fell to a one-week low today, and gold prices climbed to a record high as the government shutdown sparked a risk-off sentiment in asset markets. The shutdown also means a delay in government reports, including Thursday’s weekly jobless claims report and Friday’s monthly payroll report.  A prolonged shutdown could also delay the government’s inflation data, scheduled for release on October 15. 

Stock indexes were also weighed down by signs that the US labor market is losing momentum, following the unexpected loss of jobs in the September ADP employment change for a second consecutive month.  The 10-year T-note yield fell -4 bp to a 1.5-week low on the news, and the swaps market priced in a 100% chance the Fed will cut the fed funds target range by 25 bp at the October 28-29 FOMC meeting.

However, stock indexes recovered from their worst levels after the Sep ISM manufacturing index rose more than expected to a 7-month high.  Also, a rally in pharmaceutical stocks for a second day gave a boost to the broader market and lifted the Dow Jones Industrials into positive territory, as hopes that Pfizer’s deal with the US government, which gives it a three-year reprieve from pharmaceutical tariffs, will set a path for other pharmaceutical makers to follow.

US MBA mortgage applications fell -12.7% in the week ended September 26, with the purchase mortgage sub-index down -1.0% and the refinancing sub-index down -20.6%.  The average 30-year fixed rate mortgage rose +12 bp to 6.46% from 6.34% in the prior week.

The US Sep ADP employment change unexpectedly fell -32,000, weaker than expectations of a +51,000 increase and the largest decline in 2.5 years.  Also, Aug was revised lower to -3,000 from the previously reported +54,000.

The US Sep ISM manufacturing index rose +0.4 to a 7-month high of 49.1, stronger than expectations of 49.0. The Sep ISM price paid sub-index fell -1.8 to an 8-month low of 61.9, weaker than expectations of 62.7.

The White House warned last Wednesday that a government shutdown would trigger widespread dismissals of employees in government programs that don’t align with President Trump’s priorities.  Bloomberg Economics estimates that 640,000 federal workers will be furloughed during a shutdown, which would expand jobless claims and push the unemployment rate up to 4.7%.

Rising corporate earnings expectations are a bullish backdrop for stocks.  According to Bloomberg Intelligence, more than 22% of companies in the S&P 500 provided guidance for their Q3 earnings results that are expected to beat analysts’ expectations, the highest in a year.  Also, S&P companies are expected to post +6.9% earnings growth in Q3, up from +6.7% as of the end of May. 

The markets are pricing in a 100% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29. 

Market focus this week will be on any new trade or tariff news. On Thursday, if the US government reopens, weekly initial unemployment claims are expected to increase by +7,000 to 225,000.  Also, Aug factory orders are expected to increase by +1.4% m/m.  On Friday, Sep nonfarm payrolls are expected to increase by +51,000, and the Sep unemployment rate is expected to remain unchanged at 4.3%. Also, Sep average hourly earnings are expected to increase by +0.3% m/m and +3.7% y/y.  Finally, the Sep ISM services index is expected to slip -0.2 to 51.8.

Overseas stock markets today are mixed.  The Euro Stoxx 50 climbed to a new record high and is up +0.87%.  China’s Shanghai Composite did not trade and is closed for the week-long Lunar New Year holiday.  Japan’s Nikkei Stock 225 fell to a 2.5-week low and closed down -0.85%.

Interest Rates

December 10-year T-notes (ZNZ5) today are up +10 ticks.  The 10-year T-note yield is down -4.5 bp to 4.106%.  Dec T-notes climbed to a 1-week high today, and the 10-year T-note yield fell to a 1.5-week low of 4.085%.  T-notes rallied today on signs of weakness in the US labor market after the Sep ADP employment change unexpectedly declined for a second month.  The shutdown of the US government and weakness in stocks today have also boosted safe-haven demand for T-notes.  T-notes fell back from their best levels after the Sep ISM manufacturing index rose more than expected to a 7-month high.

European government bond yields today gave up an early advance and turned lower on the weakness in T-note yields.  The 10-year German bund yield is down -0.6 bp at 2.705%.  The 10-year UK gilt yield is down -0.7 bp to 4.692%.

The Eurozone Sep S&P manufacturing PMI was revised upward by +0.3 to 49.8 from the previously reported 49.5.

Eurozone Sep CPI rose +2.2% y/y from +2.0% y/y in Aug, right on expectations.  Sep core CPI was unchanged from Aug at +2.3% y/y, right on expectations.

Swaps are discounting a 1% chance for a -25 bp rate cut by the ECB at its next policy meeting on October 30.

US Stock Movers

Weakness in medical device makers is a negative factor for the overall market.  Insulet (PODD) is down more than -6% to lead losers in the S&P 500, and Dexcom (DXCM) is down more than -5% to lead losers in the Nasdaq 100.  Also, Edwards Lifesciences (EW), IDEXX Laboratories (IDXX), and Boston Scientific (BSX) are down more than -4%.  In addition, Intuitive Surgical (ISRG), Medtronic Plc (MDT), Stryker (SYK), and STERIS Plc (STE) are down more than -3%.

Corteva (CTVA) is down more than -5% to lead losers after saying it plans to split its seed and pesticide businesses into separate companies.

Doximity (DOCS) is down more than -3% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $64. 

Viasat Inc (VSAT) is down more than -2% after Barclays downgraded the stock to underweight from equal weight with a price target of $23. 

GE Vernova (GEV) is down more than -2% after RBC Capital Markets downgraded the stock to sector perform from outperform. 

Marvell Technology (MRVL) is down more than -1% to lead losers in the Nasdaq 100 after TD Cowen downgraded the stock to hold from buy.

AES Corp (AES) is up more than +16% to lead gainers in the S&P 500 on news that BlackRock’s Global Infrastructure Partners LP is in advanced talks to acquire the company. 

Lithium Americas (LAC) is up more than +16% after Secretary of Energy Wright told Bloomberg TV that the US government agreed to acquire a stake in the company.

Pharmaceutical stocks are rallying for a second day on hopes that Pfizer’s deal with the US government, giving it a three-year reprieve from pharmaceutical tariffs, will set a path for other pharmaceutical makers to follow. As a result, Moderna (MRNA) is up more than +8% and AstraZeneca Plc (AZN) is up more than +7% to lead gainers in the Nasdaq 100.  Also, Regeneron Pharmaceuticals (REGN) is up more than +7%, and Eli Lilly (LLY) and Biogen (BIIB) are up more than +5%.  In addition, Amgen (AMGN), Bristol-Myers Squibb (BMY), Pfizer (PFE), and Merck & Co. (MRK) are up more than +4%.

Chip makers and AI-infrastructure stocks are moving higher today, a supportive factor for the broader market.  Micron Technology (MU) is up more than +5% and ARM Holdings Plc (ARM) is up more than +4%.  Also, Applied Materials (AMAT) is up more than +3% and Intel (INTC) is up more than +2%.  In addition, KLA Corp (KLAC) and ASML Holding NV (ASML) are up more than +1%.  

Cryptocurrency-exposed stocks are climbing today, with the price of Bitcoin up more than +2% at a 1.5-week high.  As a result, Coinbase Global (COIN), Galaxy Digital (GLXY), MARA Holdings (MARA), and Strategy (MSTR) are up more than +3%.   

Nike (NKE) is up more than +5% to lead gainers in the Dow Jones Industrials after reporting Q1 revenue of $11.72 billion, stronger than the consensus of $11.02 billion. 

Carvana (CVNA) is up more than +1% after Jeffries upgraded the stock to buy from hold with a price target of $475. 

Samsara Inc (IOT) is up more than +1% after Evercore ISI upgraded the stock to outperform from in line with a price target of $50.

Earnings Reports(10/1/2025)

Acuity Inc (AYI), Cal-Maine Foods Inc (CALM), Conagra Brands Inc (CAG), Novagold Resources Inc (NG), Rezolve AI PLC (RZLV), RPM International Inc (RPM).