Stock Market Update

[BRIEFING.COM] The major indices logged losses across the board. The Dow Jones Industrial Average fell 0.9%, the S&P 500 dropped 1.9%, and the Nasdaq Composite registered a 2.8% decline.

Losses in Microsoft (MSFT 406.46, -26.06, -6.0%) and Meta Platforms (META 567.58, -24.22, -4.1%) weighed down the equity market after their earnings reports. Other mega caps were also influential in index performance and led the Vanguard Mega Cap Growth ETF (MGK) to close 3.0% lower.

Weakness in chipmakers was another limiting factor for equities. The PHLX Semiconductor Index (SOX) declined 4.0%. Monolithic Power (MPWR 759.30, -160.51, -17.5%) was the worst performer in the SOX Index even though the company beat Q3 expectations due to softer guidance than the market hoped for.

The S&P 500 information technology sector was weighed down by weakness in some of the aforementioned names. It was the worst performing sector by a wide margin, logging a 3.6% decline.

The consumer discretionary sector was the next worst performer, dropping 1.8%. Mega cap constituents contributed to the downside move, along with sharp earnings-related declines in Aptiv (APTV 56.83, -12.24, -17.7%), MGM Resorts (MGM 36.87, -4.54, -11.0%), and eBay (EBAY 57.51, -5.12, -8.2%).

Ongoing volatility in the Treasury market was another sticking point for equities today. The 10-yr yield, which hit 4.33% in response to this morning's economic data, settled at 4.28%. The 2-yr yield hit 4.21% in response to the data before settling at 4.16%.

The data included initial jobless claims, which were a low 216,000 and the Q3 Employment Cost Index, which was up 0.8%. Also, the fed's preferred gauge on inflation, the core-PCE Price Index, stuck at 2.7% year-over-year for the third straight month. Personal income was up 0.3% month-over-month in September and personal spending increased 0.5%.

Rate cut expectations did not changed much following the aforementioned reports, which were supportive of a soft landing scenario for the economy. The fed funds futures market sees a 96.7% probability of a 25 basis points rate cut at the November FOMC meeting next week versus 95.2% yesterday, according to the CME FedWatch Tool.

Market participants will be focused on the October Employment Situation report tomorrow at 8:30 ET and potential implications for Fed policy. 

• Nasdaq Composite: +20.5% YTD
• S&P 500: +19.6% YTD
• Dow Jones Industrial Average: +10.8% YTD
• S&P Midcap 400: +11.4% YTD
• Russell 2000: +9.4% YTD

Reviewing today's economic data:

• Initial jobless claims for the week ending October 26 decreased by 12,000 to 216,000 (Briefing.com consensus 229,000). On an unadjusted basis, they totaled 200,132, a decrease of 3,349 from the prior week when seasonal factors expected an increase of 7,292. Continuing jobless claims for the week ending October 19 decreased by 26,000 to 1.862 million; however, the four-week moving average of 1,869,250 is the highest since November 27, 2021.
  • The key takeaway from the report is that layoff activity remains fairly subdued, yet it has been more challenging for laid-off workers to find new employment.
• The Q3 Employment Cost Index increased 0.8% (Briefing.com consensus 1.0%), seasonally adjusted, for the 3-month period ending in September 2024. Wages and salaries increased 0.8% and benefit costs increased 0.8% from June 2024.
  • The key takeaway from the report is that compensation costs for civilian, private, and state and local government workers decelerated versus the 12-month period ending in September 2023, reflecting a moderation in wage inflation.
• Personal income increased 0.3% month-over-month in September (Briefing.com consensus 0.4%) following a 0.2% increase in August. Personal spending increased 0.5% (Briefing.com consensus 0.4%) following an upwardly revised 0.4% increase (from 0.3%) in August. The PCE Price Index was up 0.2%, as expected, and up 2.1% year-over-year versus 2.3% in August. The core PCE Price Index, which excludes food and energy, was up 0.3% (Briefing.com consensus 0.2%) and up 2.7% year-over-year for the third straight month.
  • The key takeaway from the report is the stickiness in core PCE inflation, which is running comfortably above the Fed's 2% target. That will wash out any expectation for another aggressive rate cut by the Fed anytime soon and it will keep the debate alive as to whether the Fed should keep cutting rates.
• October Chicago PMI dropped to 41.6 (Briefing.com consensus 47.5) from 46.6
• Weekly EIA Natural Gas Inventories showed a build of 78 bcf after last week's build of 80 bcf

Friday's economic calendar features the Employment Situation Report for October at 8:30 ET. Other data include:

• 9:45 ET: Final October S&P Global U.S. Manufacturing PMI (prior 47.8)
• 10:00 ET: September Construction Spending (Briefing.com consensus 0.0%; prior -0.1%) and October ISM Manufacturing Index (Briefing.com consensus 47.6%; prior 47.2%)