Opening Market Update

Published as of: October 2, 2024, 9:13 a.m. ET

(Wednesday market open) After a disappointing start to the fourth quarter, stocks faced more pressure early Wednesday with volatility elevated, crude oil surging, and investors on pins and needles about the next phase of the Middle East conflict.

Rising volatility also could reflect positioning ahead of Friday's nonfarm payrolls report, where a weak result might fuel perceptions of a U.S. economy struggling for traction. Analysts now expect jobs growth of 140,000 in September, down slightly from August's 142,000.

The caution that emerged yesterday spilled into this morning's early trading, reflecting the aftermath of Iran's missile strike on Israel and dockworkers walking away from their jobs at major U.S. East Coast ports. Major indexes lost additional ground not just in pre-market U.S. trading but in most international markets as well, though traditional safety valves like U.S. Treasuries and gold walked back some of yesterday's moves. Also, the tech-heavy Nasdaq-100^® (NDX) turned green closer to the open as semiconductor stocks found buying interest. Info tech, which came under the most pressure yesterday, is a possible barometer Wednesday.

WTI Crude Oil futures (/CL) spiked again early Wednesday, rising 3% on media reports that Israel could target Iranian crude production. Iran's large crude output is just one vulnerable element for the world's oil market. Tehran could potentially tie up the Strait of Hormuz, the exit to the Persian Gulf where much of the world's crude exits for global trade routes. Fears of a wider Middle East war might keep oil bubbling if things don't quickly calm.

The port work stoppage could slow commerce and even influence jobs and inflation reports in coming weeks if not quickly settled, though one silver lining is that inventories are elevated compared with sales for some of the most affected import categories, according to economists.

Today's schedule includes several Federal Reserve speakers and a look at weekly crude oil inventories. Before that came the ADP September employment report that came in above expectations with 143,000 jobs added. Analysts had expected around 120,000.

In premarket trading, futures based on the S&P 500^® index (SPX) lost 0.1%, and the NDX gained 0.1%. Futures based on the Dow Jones Industrial Average^® ($DJI) fell 0.1%.

• The 10-year U.S. Treasury yield (TNX) bounced five basis points to 3.79%, gaining back most of yesterday's losses.
• The U.S. Dollar Index ($DXY) hit a two-week high near 101.45.
• The Cboe Volatility Index^® (VIX) is steady at 19.22, up more than 20% from last week's lows.
• WTI Crude Oil climbed 2.8% to $71.79 per barrel, a bit below its overnight peaks.
• Bitcoin (BTC) fell 1.3% to $61,083, possibly reflecting risk-off sentiment.

The ADP report showed new jobs congregating mostly in the services sector at a more than 2-to-1 ratio to goods-producing positions. Pay gains for people staying in their jobs slipped to 4.7% while people leaving for new ones got on average a 6.6% bump in pay, down from 7.3% in August.

"Stronger hiring didn't require stronger pay growth last month," said Nela Richardson, ADP's chief economist, in a press release. Jobs creation showed a "widespread rebound" after a five-month slowdown, the firm added. Construction jobs dominated newly created goods-producing positions.

The ADP report tracks private employment and isn't often correlated with the official U.S. government payrolls data due Friday. So a stronger-than-expected ADP figure shouldn't have investors convinced that Friday's report will top current thinking.

Yesterday's September ISM Manufacturing PMI^® continued the report's contractionary ways with a headline reading of 47.2%, below consensus of 47.4%. The ISM Services PMI^® has been far stronger than manufacturing, and that's due Thursday. Analysts expect 51.6%, a slight improvement from August.

Also, tomorrow morning, be on the lookout for the September Challenger job cuts report, which hit a five-month high of 75,891 in August. Tech layoffs dominated the list. Overall, the number of job cuts was the most for August since 2009, and the Fed closely follows layoff trends.

This Friday's September nonfarm payrolls report could shed more light on paychecks, with analysts now expecting a 3.8% annual rise in average hourly earnings for September, equal to the August gain, but a 0.3% monthly rise, down from 0.4% in August, Trading Economics said. If those numbers are correct, wages are easily keeping up with inflation and could help workers feel more flush.

Before the payrolls report, investors await tomorrow's weekly initial jobless claims data. Claims and continuing claims have mostly been on the wane, though continuing claims had an upward blip last time out. Analysts expect initial claims of 223,000 tomorrow, according to Briefing.com.

Yesterday, Atlanta Fed President Raphael Bostic said that steeper rate cuts might be required if Friday's jobs data disappoint. "A surprise to the weak side ... would pull me much further into really needing another dramatic move," Bostic told Reuters.

Yesterday's August Job Openings and Labor Turnover Survey (JOLTS) topped expectations at 8.04 million. But the quit rate continued to fall, which could be a sign that employees feel less safe exploring the job market.

Overall, positive surprises have been outweighing negative ones recently in U.S. economic reports. The Citigroup U.S. Economic Surprise Index is back in positive territory, said Kevin Gordon, director, senior investment strategist at Schwab.

Shares of footwear giant Nike (NKE) fell 7.6% in pre-market trading as investors digested quarterly results, which saw Nike beat analysts' average earnings per share estimate and matched consensus on revenue, helped by higher selling prices. North American sales stayed soft, falling 11% from a year ago, and the company withdrew guidance for the fiscal year. Several Wall Street firms lowered their price targets on Nike, saying the company's turnaround appears to be taking longer than expected, though they expressed optimism on its leadership with a new CEO taking over.

Tesla's (TSLA) quarterly delivery figures are due today, and analysts expect around 460,000, up 6% from a year earlier. Tesla shares fell yesterday on a Bloomberg report that the company could face a strike by workers in Sweden.

Staying with the work stoppage theme, some economists said today that worries about the U.S. port strike's impact might be overdone. They point out much of the holiday season inventory already shipped, and that electronic goods, toys, and clothing mostly come from Asia into West Coast ports and aren't affected. But if you love European chocolate, you might have to pay up.

More consumer-oriented earnings reports round out the week with food processor Conagra (CAG) disappointing with its earnings today and spirits company Constellation Brands (STZ) scheduled for Thursday. Last week's September consumer sentiment report was a bit better than analysts had expected but still relatively weak, and consumer confidence before that disappointed. PepsiCo (PEP) next week becomes the first huge consumer brand to report in the new quarter, and the biggest banks open their books a week from Friday.

Stocks on the move:

• Conagra dropped 3% ahead of the open following earnings that missed both top- and bottom-line consensus views. The packaged food company did maintain prior guidance, saying it has "confidence in the underlying momentum" of the business.
• Salesforce (CRM) climbed 1% in pre-market trading following an upgrade from Northland to outperform from market perform. This came a week after Piper Sandler upgraded the tech company, citing strong free cash flow.

Talking technicals: One potential support point for the SPX to keep in mind if pressure continues is the July high of 5,667. The SPX's Relative Strength Index (RSI), a momentum indicator, turned lower this week.

Tuesday in review: Wall Street sank Tuesday in a tech-led sell-off after Iran's missile attack on Israel and a strike by U.S. port workers. The 10-year Treasury note yield, which moves the opposite direction of underlying notes, managed to claw back from intraday lows but still finished well below Monday's levels following the flight to safety and weak U.S. manufacturing data.

Overall, declining shares led advancing ones yesterday, with energy climbing most thanks to rising crude prices. Info tech fell sharply, perhaps a sign of risk-off sentiment taking hold in the wake of the Middle East conflict and port strike.

Election fact sheet: With the U.S. presidential vote less than five weeks away, check back on how the stock market and economy performed during past administrations in the latest analysis from Liz Ann Sonders, chief investment strategist at Schwab, and Kevin Gordon, director, senior investment strategist at Schwab.

Early today, futures traders build in a 64% chance rates will fall 25 basis points at the Federal Open Market Committee (FOMC) meeting on November 6–7, based on the CME FedWatch Tool. There's a 36% chance of a 50-basis point cut at that meeting.

Ideas to mull as you trade or invest

Pay bump: Data last Friday showed the U.S. personal savings rate as a percentage of disposable income falling to 4.8% from 4.9% and wages and salaries rising 0.5% versus 0.3% in July. This could indicate that people keep spending rather than saving as their salaries rise. Even so, other recent data indicates that people leaving their old jobs aren't getting much more in the way of a salary bump than people who stay put. This could help companies keep employees and indicate falling wage pressure.

Assessing Fed cycles: With one Federal Reserve "jumbo" rate cut in the books and the market baking in many more between now and the end of the next year, Wall Street is awash in predictions of what this might mean for the stock market. Maybe it's best to ignore any outlook that suggests there's one answer. "Investors should not approach Fed cycles with any kind of 'typical' or 'average' thinking, especially because each cycle is unique," said Schwab's Gordon. "Indeed, the S&P 500 has historically done well in the year following the start of a rate cutting cycle, but the range of returns is massive—from 40% to –18%." He adds that the state of the economy will continue to determine whether further rate cuts are reactionary or supportive, which is why investors should be more focused on the trajectory of the data as opposed to the number (or degree) of cuts that are priced in.

China stimulus redux: Last week's stimulus measures from Beijing were followed this week by a change to rules for homebuyers and lower mortgage rates to help the property market. More might be needed. "New tools such as cash to low-income households, monthly child allowance, and e-vouchers for spending on entertainment have been floated," said Michelle Gibley, director of international research at the Schwab Center for Financial Research. "Combined with lower mortgage payments and a rally in the stock market, these could boost confidence and create a short-term economic bounce, but a durable rally in Chinese stocks likely needs evidence of fiscal follow through and improvement in consumer and business confidence."

October 3: August factory orders, August ISM Services PMI, and expected earnings from Constellation Brands (STZ).

October 4: September nonfarm payrolls.

October 7: August consumer credit.

October 8: Expected earnings from PepsiCo (PEP).

October 9: August wholesale inventories.