What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +0.81%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.39%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.45%.

Stocks on Wednesday closed moderately higher as lower bond yields temporarily eased interest rate concerns and supported gains in stocks.  T-note yields fell after the monthly ADP employment report showed fewer jobs than expected, a dovish factor for Fed policy. Stock indexes fell back from their best levels as energy stocks declined after crude prices tumbled more than -5% to a 5-week low.  Also, the stronger-than-expected Sep ISM services and Aug factory orders reports lifted T-note yields from their lowest levels and weighed on stocks.

The U.S. Sep ADP employment change rose +89,000, weaker than expectations of +150,000 and the smallest increase in over 2-1/2 years.

The U.S. Sep ISM services index fell -0.9 to 53.6, stronger than expectations of 53.5.

U.S. Aug factory orders rose +1.2% m/m, stronger than expectations of +0.3% m/m.

Weekly U.S. MBA mortgage applications fell -6.0% in the week ended Sep 29 to its lowest level since 1996.  The home purchase sub-index fell -5.7% to 136.6, the lowest since 1995. The refinancing sub-index fell -6.6% w/w.  The 30-year fixed mortgage rate rose +12 bp to 7.53%, the highest in almost 23 years.

The markets are discounting a 24% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 42% 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 Wednesday moved lower.  The 10-year T-note yield fell back from a new 16-year high of 4.880% and finished down -6.3 bp at 4.733%.  The 10-year German bund yield fell back from a 12-year high of 3.026% and finished down -4.9 bp at 2.919%.  The 10-year UK gilt yield fell back from a 1-1/2 month high of 4.666% and finished down -1.8 at 4.579%. 

ECB President Lagarde said future ECB decisions "will ensure that the interest rates will be set at sufficiently restrictive levels for as long as necessary."

Eurozone Aug retail sales fell -1.2% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 8 months.

Eurozone Aug PPI fell a record -11.5% y/y from a -7.6% y/y decline in July, right on expectations.

The Eurozone Sep S&P composite PMI was revised upward by +0.1 to 47.2 from the initially reported 47.1.

Overseas stock markets on Wednesday settled mixed.  The Euro Stoxx 50 closed up +0.10%.  China’s Shanghai Composite Index was closed for the Golden Week holidays.  Japan’s Nikkei 225 today closed down -2.28%.

Today’s stock movers…

Alphabet (GOOGL) closed up more than +2% after unveiling new Pixel 8 and Pixel 8 pro Phones and a new Pixel Watch.  The company also said it will release a version of its virtual assistant that is powered by its Bard artificial intelligence technology. 

Airline stocks rallied as crude prices plunged more than -5% to a 3-week low, which lowers fuel costs and may boost airline profits.  American Airlines Group (AAL) closed up more than +3%. Also, Delta Air Lines (DAL) closed up more than +2%, and Southwest Airlines (LUV) and United Airlines (UAL) closed up more than +1%.

Cruise line stocks moved higher after Shore Capital Stockbrokers upgraded Carnival to hold from sell.  As a result, Norwegian Cruise Line Holdings (NCLH) closed up more than +3%, and Carnival (CCL) and Royal Caribbean Cruises Ltd (RCL) closed up more than +2%.   

Palantir Technologies (PLTR) closed up more than +5% as the company has emerged as the top pick for a contract to overhaul the UK’s National Health Service. 

Matson Inc (MATX) closed up more than +2% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $113.

Hub Group (HUBG) closed up more than +2% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $98.

Molson Coors Beverage (TAP) closed up more than +1% after announcing a new $2 billion stock buyback plan.

Energy companies and energy service stocks sold off Wednesday as the price of WTI crude plunged more than -5% to a 5-week low.  As a result, Devon Energy (DVN) closed down more than -5% to lead losers in the S&P 500, and Baker Hughes (BKR) closed down more than -4% to lead losers in the Nasdaq 100.  Also, Phillips 66 (PSX), Haliburton (HAL), Marathon Oil (MRO), and Schlumberger (SLB) closed down more than -4%. In addition, Exxon Mobil (XOM), Occidental Petroleum (OXY), Valero Energy (VLO), Marathon Petroleum (MPC), and Diamondback Energy (FANG) closed down more than -3%. Finally, Chevron (CVX) closed down more than -2% to lead the Dow Jones Industrials losers.

A10 Networks (ATEN) closed down more than -27% after forecasting preliminary Q3 revenue between $56.5 million-$58.5 million, well below the consensus of $74.5 million. 

Cal-Maine Foods (CALM) closed down more than -7% after reporting Q1 net sales of $459.3 million, weaker than the consensus of $479.5 million.

Across the markets…

December 10-year T-notes (ZNZ23) Wednesday closed up +15 ticks.  The 10-year T-note yield fell -6.3 bp to 4.733%.  Dec T-notes Wednesday recovered from a new 16-year nearest-futures low and moved higher, and the 10-year T-note yield fell back from a 16-year high of 4.880% and moved lower.  Short covering emerged in T-notes Wednesday after the Sep ADP employment report rose less than expected, which is a sign of a slowing labor market that is dovish for Fed policy.  T-notes also found support from Wednesday’s -5% plunge in crude prices that lowered inflation expectations.  T-notes fell back from their best levels on the stronger-than-expected Sep ISM services and Aug factory orders reports. 

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