XOM - Job Market Keeps Humming As Payrolls Surge

2023-10-06 11:12:45 ET

Summary

• September nonfarm payrolls exceed expectations, causing a surge in Treasury yields and a decline in stock markets.
• The unemployment rate remains steady at 3.8%.
• The Fed's December meeting is now uncertain, with a coin toss between a quarter-point hike and no move.

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Our top story so far

The Bureau of Labor Statistics dropped a hammer on the markets as September nonfarm payrolls rocketed up by 336,000 . That's the biggest monthly gain since January and double what economists predicted.

The unemployment stayed steady at 3.8%.

The strong jobs number sparked a surge in Treasury yields, with the bond market jittery about strong data keeping the Fed in a higher-for-longer mode. Those gains in rates kicked the chair out from under stocks.

In terms of market reaction right as the number hit, hedge fund trader Tom Hearden simply tweeted "gnite."

The 10-year Treasury yield (US10Y) is up more than 10 basis points to 4.85% and could challenge its high for the week, close to 4.90%.

The S&P 500 (SP500) is off more than -0.5%, with the Nasdaq ( COMP.IND ) and the Dow ( DJI ) seeing similar drops. All the indexes are well off the lows of futures. But barring a monster comeback the broader market is due to close out the week in the red.

Janney's Guy LeBas says "Markets are...not thrilled. … Equities taking it on the chin and dollar screaming. This is yet one more data point consistent with a productivity boom."

Robert Schein, CIO of Blanke Schein Wealth Management says they "remain cautious on markets throughout October, as this is a seasonally volatile month of the year for markets" with earnings season the next big catalyst.

We remain cautious on markets throughout October, as this is a seasonally volatile month of the year for markets. Earnings season is the next big catalyst for stocks, as investors are eager to see how companies are continuing to hold up in this inflationary and high-rates environment.

The Fed's December meeting is now back to a coin toss between a quarter-point hike and now move, according to the swaps market.

One thing that may keep the Fed at bay is that September wage growth was tame, especially in light of the payrolls numbers, up just 0.2% to 4.2% annually.

But Pantheon Macro says this is "not sufficient proof for the Fed that wage gains are slowing, because the AHE data are wild and unreliable." They say what matters is the ECI report on Halloween where they expect to see a further softening.

And one more thing to note for the weekend, restaurant and bar employment jumped back to pre-pandemic levels.

Among active stocks, Formula One Group ( FWONA ) caught an upgrade to Buy at Citi, which said any concerns about sports rights renewals are "overblown." Analyst Jason Bazinet raised his rating from Neutral and said that concerns over Vegas Grand Prix media rights and the recent renewal for WWE rights with NBCUniversal have raised investor concern about U.S. sports rights. But those appear to be unfounded.

Microsoft (MSFT)- backed OpenAI is thinking of manufacturing its own AI chips and even evaluated a potential acquisition target. The maker of ChatGPT has not yet decided to move forward, Reuters reported, citing sources. But since at least last year it has explored several options to solve the shortage of expensive AI chips that it relies on.

And Tesla ( TSLA ) dropped prices for its Model 3 compact sedan and Model Y SUV in the U.S. by roughly 2.7% to 4.2% in an effort to boost demand .The move comes after its Q3 deliveries missed estimates.

And in the Wall Street Research corner

BofA Securities updated its Alpha Surprise model portfolio, with a fair amount of new energy names while jettisoning some consumer discretionary selections.

The quantamental portfolio looks for cheap, out-of-consensus stocks using analyst earnings estimates .

Devon Energy (DVN), Diamondback ( FANG ) and Exxon ( XOM ) are among additions, along with Airbnb ( ABNB ) and 3M (MMM).

Starbucks (SBUX), Delta (DAL), Dollar General (DG) and J&J ( JNJ ) were some of the deletions. Check out the link in Show Notes for the story with the full list.

And BMO screened for dividend stocks using multiple factors that honed in on income names that work in times of high volatility and high interest rates.

Strategist Brian Belski says: "While volatility has been relatively muted this year, we continue to believe there is a high likelihood that increased bouts of volatility will reappear in the US equity markets in the coming months given the amount of headline risk currently out there."

Going back to 1990, their model "fared significantly better than the overall market during periods of S&P 500 losses." And when the 10-year yield was above its 3-year moving average it "posted an average one-year total return … about 2% higher than the overall market."

He adds that "while the yields are likely to remain above the very low levels investors have become used to over the past decade, this certainly does not represent a poor backdrop for all dividend strategies."

Among the 15 stocks on the list are AbbVie (ABBV), Microsoft and Broadcom (AVGO).

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