Sector Investing

[ReturntoSender]

Stocks recover from short-term oversold condition, soft data boosts rate-cut expectations
03-Oct-19 16:20 ET
Dow +122.42 at 26201.04, Nasdaq +87.02 at 7872.27, S&P +23.02 at 2910.67

https://www.briefing.com/stock-market-update

[BRIEFING.COM] The S&P 500 dropped as much as 1.1% on Thursday after the ISM Non-Manufacturing Index for September came in weaker than expected, but the market quickly bounced back while rate-cut expectations increased. The benchmark index ended the day up 0.8%, finishing near session highs to recoup some losses from a two-day drop.

The Nasdaq Composite (+1.1%) advanced the most, followed by 0.5% gains in the Dow Jones Industrial Average (+0.5%) and Russell 2000 (+0.5%). All were also down more than 1.0% today.

Stocks opened the day struggling to find direction in front of that non-manufacturing index, which declined to 52.6% (Briefing.com consensus 55.4%) from 56.4% in August. The consumer-oriented services sector remained in expansion mode, but the slower growth fed into concerns that the manufacturing weakness was trickling over to the U.S. consumer.

At its intraday low, the S&P 500 was down 4.1% from Monday's close, which is to say the market may have fallen too far, too fast. An opportunistic mindset took fold, which likely contributed to some short-covering activity, to help the broader market bounce from a short-term oversold condition.

All 11 S&P 500 sectors rallied off their lows and finished in the green. The energy (+1.3%), information technology (+1.2%), and real estate (+1.2%) sectors outperformed, as did the Philadelphia Semiconductor Index (+1.7%). The financials sector (+0.2%) squeezed out a last-minute gain, even as Treasury yields continued to decline.

The 2-yr yield dropped ten basis points to 1.38%, and the 10-yr yield dropped seven basis points to 1.53%. The U.S. Dollar Index declined 0.1% to 98.90. WTI crude lost 0.5%, or $0.20, to $52.4/bbl.

The yield on the fed-funds sensitive 2-yr note fell to its lowest level since September 2017, as expectations for additional rate cuts continued to increase. According to the CME FedWatch Tool, the probability for a 25-basis points cut at the October FOMC meeting is about 90%, and a further quarter-point cut in December is over 50%. Both are up considerably from last week.

Corporate news included Facebook (FB 179.38, +4.78, +2.7%) announcing a camera-first messaging app, named Threads, for its Instagram platform. Shares of Snap (SNAP 14.30, -0.50) fell 3.4% in response. PepsiCo (PEP 137.93, +3.99, +3.0%) reported positive earnings results. Constellation Brands (STZ 194.26, -12.53, -6.1%) did, too, but shares still declined. Tesla (TSLA 233.03, -10.10, -4.2%) reported record Q3 deliveries but missed estimates.

Reviewing Thursday's economic data, which included the ISM Non-Manufacturing Index for September, the weekly Initial and Continuing Claims report, and Factory Orders for August:

The ISM Non-Manufacturing Index for September fell to 52.6% (Briefing.com consensus 55.4%) from 56.4% in August. The dividing line between expansion and contraction is 50.0%, so the September number connotes a services sector that is expanding, but at a slower pace.
The key takeaway from the report is that it shows a slowdown in non-manufacturing growth. Accordingly, it is fanning concerns that the manufacturing recession, and trade uncertainty, are having a broader effect on the consumer-oriented services sector.
Initial claims for the week ending September 28 increased by 4,000 to 219,000 (Briefing.com consensus 215,000) while continuing claims for the week ending September 21 decreased by 5,000 to 1,651,000.
The key takeaway from the report is that there weren't any noticeable deviations in underlying claims trends, which have been encouraging for some time.
Factory Orders for August declined 0.1% (Briefing.com consensus 0.0%) following an unrevised 1.4% increase in July. Shipments were also down 0.1% after declining 0.3% in July.
The key takeaway from the report is that business spending was relatively weak again in August.

Looking ahead, investors will receive the Employment Situation Report for September and the Trade Balance report for August on Friday.

Nasdaq Composite +18.6% YTD
S&P 500 +16.1% YTD
Dow Jones Industrial Average +12.3% YTD
Russell 2000 +10.2% YTD

Market Snapshot
Dow 26201.04 +122.42 (0.47%)
Nasdaq 7872.27 +87.02 (1.12%)
SP 500 2910.67 +23.02 (0.80%)
10-yr Note +6/32 1.538
NYSE Adv 1818 Dec 1015 Vol 801.4 mln
Nasdaq Adv 1888 Dec 1174 Vol 2.1 bln

Industry Watch
Strong: Energy, Real Estate, Information Technology
Weak: Financials

Moving the Market

-- Stocks finish higher after initially selling off after ISM Non-Manufacturing Index for September declined more than expected

-- Bounce from a short-term oversold condition, expectations for more rate cuts increased

-- Treasury yields continued to decline