Stocks Rebound Higher Ahead of Friday’s U.S. Payroll Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +0.30%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.46%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.02%. 

Stocks on Thursday recovered from early losses and posted modest gains. The S&P 500, Dow Jones Industrials, and Nasdaq 100 all rebounded higher from 6-week lows.  A rally in drugmakers Thursday led the overall market higher as investors flocked into defensive stocks when the indexes fell to 6-week lows earlier in the session.  Also, short covering ahead of Friday’s monthly U.S. payroll report helped stocks recover from early losses.   

Stocks on Thursday initially retreated as the stronger-than-expected U.S. jobless claims and Aug ISM manufacturing index reports bolstered the case for the Fed to raise interest rates by 75 bp later this month. 

Stock prices Thursday opened lower on global growth concerns after China put the city of Chengdu, with a population of 21 million, under lockdown due to a surge in Covid infections.  Chengdu is the biggest city to shut down since Shanghai’s two-month lockdown earlier this year.  The new shutdown will exacerbate supply chain issues and undercut global economic activity. 

Chipmakers sold off Thursday after Nvidia warned that new U.S. government rules governing the export of artificial intelligence chips to China might affect hundreds of millions of dollars in revenue.

Higher global bond yields Thursday weighed on stocks, as the 10-year T-note yield climbed to a 2-1/4 month high of 3.293%.  Global government bond yields are climbing on the outlook for central banks to continue to aggressively raise interest rates to combat inflation.  The 10-year UK gilt yield soared to an 8-1/2 year high Thursday of 2.910%, and the 10-year German bund yield climbed to a 2-month high of 1.634%. 

U.S. weekly initial unemployment claims unexpectedly fell -5,000 to a 2-month low of 232,000, showing a stronger labor market than expectations of an increase to 248,000.

U.S. Q2 nonfarm productivity was revised upward to -4.1% from the previously reported -4.6%, stronger than expectations of -4.3%.  Q2 unit labor costs were revised downward to +10.2% from +10.8%, weaker than expectations of +10.5%.

The U.S. ISM manufacturing index was unchanged at 52.8, stronger than expectations of a decline to 51.9.  The Aug ISM prices paid sub-index fell -7.5 to a 2-year low of 52.5, weaker than expectations of 55.3.

Today’s stock movers…

Drugmakers rallied Thursday as the slump in the S&P 500 to a 6-week low prompted investors to purchase defensive drug stocks.  Pfizer (PFE) closed up more than +3%.  Also, Johnson & Johnson (JNJ) closed up more than +2% to lead gainers in the Dow Jones Industrials.  In addition, AbbVie (ABBV), Amgen (AMGN), Abbot Laboratories (ABT), Eli Lilly (LLY), Bristol-Meyers Squibb (BMY), and Merck & Co (MRK) closed up more than +2%.

Moderna (MRNA) closed up more than +5% Thursday to lead gainers in the Nasdaq 100 after the EU joined the U.S. in recommending Moderna’s bivalent Covid booster shot to target the omicron BA.1 subvariant for use in people ages 12 and above. 

U.S. chipmaking stocks retreated Thursday after Nvidia warned that new U.S. government rules governing the export of artificial intelligence chips to China might affect hundreds of millions of dollars in revenue.  Nvidia (NVDA) closed down more than -7% to lead losers in the S&P 500.  Also, ASML Holding NV (ASML) closed down by more than -4%.  In addition, Advanced Micro Devices (AMD) and Applied Materials (AMAT) closed down by more than -2%.  Finally, Qualcomm (QCOM), Broadcom (AVGO), and Marvell Technology (MRVL) closed down by more than -1%.

Energy stocks and energy service providers moved lower Thursday, with WTI crude falling more than -3% to a 2-week low.  Valero Energy (VLO) closed down by more than -5%.  Also, Devon Energy (DVN), Occidental Petroleum (OXY), Phillips 66 (PSX), Haliburton (HAL), Schlumberger (SLB), and Marathon Petroleum (MPC) closed down by more than -3%. 

Okta (OKTA) closed down more than -33% Thursday to lead losers in the Nasdaq 100 after forecasting 2023 revenue of $1.81 billion-$1.82 billion, the midpoint below the consensus of $1.82 billion.  Also, Morgan Stanley downgraded the stock to equal weight from overweight.

Hormel Foods (HRL) closed down more than -6% Thursday after reporting Q3 EPS of 40 cents, below the consensus of 41 cents, and cut its full-year EPS forecast to $1.78-$1.85 from a previous estimate of $1.87-$1.97, weaker than the consensus of $1.91.

Freeport-McMoRan (FCX) closed down more than -5% Thursday on a slump in metals prices, with silver falling to a 2-year low, gold sliding to a 6-week low, and copper dropping to a 4-week low. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Thursday closed down -28.5 ticks, and the 10-year T-note yield rose +6.2 bp to 3.255%.  Sep T-notes Thursday slid to a 2-1/4 month low, and the 10-year T-note yield rose to a 2-1/4 month high of 3.293%.  The outlook for global central banks to aggressively tighten their monetary policies to combat inflation is pushing bond yields higher worldwide.  The 10-year UK gilt yield surged to an 8-1/2 year high Thursday at 2.910%, and the 10-year German bund yield climbed to a 2-month high of 1.634%.  Better-than-expected U.S. economic reports Thursday on weekly jobless claims and the Aug ISM manufacturing index were hawkish for Fed policy and undercut T-note prices.

An easing of inflation expectations supported T-note prices after the 10-year breakeven inflation rate fell to a 2-week low Thursday at 2.489%.  Also, price pressures eased slightly last month and were bullish for T-notes after Thursday’s Aug ISM prices paid sub-index fell -7.5 points to a 2-year low of 52.5, weaker than expectations of 55.3.

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