The S&P 500 Index ($SPX) (SPY) Friday closed up by +0.90%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.81%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +1.22%.

Stocks rallied Friday as a stronger-than-expected US Sep payroll report bolstered the outlook for a soft landing.  However, gains in stock indexes were limited as the strong payroll report pushed the 10-year T-note yield to a 1-3/4 month high and reduced the chances of a -50 bp Fed rate cut at the November 6-7 FOMC meeting to 0% from 35% on Thursday. 

The prospect of escalating conflict in the Middle East has dampened the appetite for risk assets and is a negative factor for stocks. The US and its allies warned of “uncontrollable escalation” in the Middle East after Israel carried out bombing raids overnight near Beirut airport aimed at Hezbollah commanders and facilities.  The markets are awaiting Israel’s response to Tuesday’s missile barrage from Iran after Israeli Prime Minister Netanyahu vowed to retaliate, saying Iran “made a big mistake” and “will pay.” 

US Sep nonfarm payrolls rose +254,000, showing a stronger labor market than expectations of +150,000 and the largest increase in 6 months.  The Sep unemployment rate unexpectedly fell -0.1 to 4.1%, showing a stronger labor market than expectations of no change at 4.2%.

US Sep average hourly earnings rose +0.4% m/m and +4.0% y/y, stronger than expectations of +0.3% m/m and +3.8% y/y.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.

Overseas stock markets Friday settled higher.  The Euro Stoxx 50 closed up by +0.68%.  China's Shanghai Composite is closed for the week-long National Day holiday.   Japan's Nikkei Stock 225 closed up by +0.22%.

Interest Rates

December 10-year T-notes (ZNZ24) Friday closed sharply lower by -1-2/32 points. The 10-year T-note yield rose +13.3 bp to 3.979%.  Dec T-notes Friday tumbled to a 1-1/2 month low, and the 10-year T-note yield jumped to a 1-3/4 month high of 3.983%.  T-notes sold off sharply Friday as the US Sep payroll report showed a larger-than-expected increase in payrolls and a stronger-than-expected increase in average hourly earnings, a hawkish factor for Fed policy that substantially reduced the chances of a -50 bp Fed rate cut to 0% at next month’s FOMC meeting.  Also, an increase in inflation expectations weighed on T-note prices after the 10-year breakeven inflation rate rose to a 2-month high Friday at 2.255%. 

European government bond yields Friday moved higher.  The 10-year German bund yield rose to a 1-month high of 2.239% and finished up +6.6 bp at 2.210%.  The 10-year UK gilt yield rose to a 2-1/4 month high of 4.138% and ended up +11.4 bp at 4.130%.

French Aug industrial production rose +1.4% m/m, stronger than expectations of +0.3% m/m and the largest increase in 15 months.

ECB Governing Council member Centeno said, "The dynamic of the labor market in the Eurozone is cooling a bit, and inflation is very close to 2%."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 91% for the October 17 meeting.

US Stock Movers

The strength of chip stocks on Friday was supportive of the overall market.  Advanced Micro Devices (AMD) closed up more than +5%, and Broadcom (AVGO) closed up more than +2%.  Also, Nvidia (NVDA), ON Semiconductor (ON), GlobalFoundries (GFS), KLA Corp (KLAC), Marvell Technology (MRVL), Intel (INTC), and Applied Materials (AMAT) closed up more than +1%.  

Lithium producers rallied Friday, led by an 8% jump in Albemarle (ALB) to lead gainers in the S&P 500 after The Australian reported that mining giant Rio Tinto may be looking to make deals in the space.

Vistra Corp (VST) closed up more than +4% after BMO Capital Markets raised its target price on the stock to $146 from $125. 

Abercrombie & Fitch (ANF) closed up more than +9% after the stock was added to JPMorgan Chase’s Positive Catalyst Watch with a price target of $195. 

Willimas Cos (WMB) closed up more than +3% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $58. 

M&T Bank Corp (MTB) closed up more than +4% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $210. 

CVS Health Corp (CVS) closed up +3% after TD Cowen upgraded the stock to buy from hold with a price target of $85. 

CH Robinson Worldwide (CHRW) closed up more than +1% after UBS upgraded the stock to buy from neutral with a price target of $140.  

Homebuilders were under pressure Friday after the 10-year T-note yield jumped to a 1-3/4 month high, a negative factor for housing demand.  As a result, DR Horton (DHI), Lennar (LEN), PulteGroup (PHM), and Toll Brothers (TOL) closed down more than -2%.   

Shipping stocks retreated Friday, led by a -12% fall in ZIM Integrated Shipping Services (ZIM) after the US dockworkers strike was suspended, which should knock freight rates lower. 

Azek Co (AZEK) closed down more than -4% after Loop Capital Markets downgraded the stock to hold from buy.   

Rivian Automotive (RIVN) closed down more than -2% after cutting its full-year vehicle production forecast to 47,000-49,000 from a previous estimate of 57,000, below the consensus of 55,295. 

Dine Brands Global (DIN) closed down more than -2% after Truist Securities downgraded the stock to hold from buy.

Warner Music Group (WMG) closed down more than -1% after Bank of America Global Research downgraded the stock to underperform from neutral with a price target of $30.

Nordson (NDSN) closed down more than -1% after announcing the pricing of its offering of $600 million of 4.5% notes due 2029.

Earnings Reports (10/7/2024)

Aviat Networks Inc (AVNW), Dakota Gold Corp (DC), Dakota Gold Corp (DC), Duckhorn Portfolio Inc/The (NAPA).

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