(Bloomberg) — Stocks fell as traders reduced bets on Federal Reserve rate cuts, sending the 10-year Treasury yield above 4%. Brent crude rose to $80 as tensions in the Middle East fueled speculation that Israel could attack Iran’s oil infrastructure.
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After impressive job growth for September, expectations for continued inflation fueled speculation that policymakers will opt for a smaller rate cut next month. Money markets don’t see another half-point cut this year, while the quarter-point reduction in November that was previously seen as a certainty is now worth about 80%.
“Friday’s strong jobs report appears to not only kill the possibility of a 50-basis-point rate cut in November, but also start conversations about the Fed keeping rates unchanged if economic data continues to be hotter than expected,” said Chris Larkin at E. * Trading from Morgan Stanley. “But as shown last week, geopolitics cannot be ignored – an escalation of the situation in the Middle East has the potential to increase volatility.”
The S&P 500 fell to around 5,730. Amazon.com Inc. fell after a rare analyst downgrade that expressed concern about margin trends next year, which growth in its cloud computing business could not keep up with. Pfizer Inc rose on news reports that activist investor Starboard Value has taken a stake of about $1 billion in the drugmaker.
The 10-year Treasury yield rose five basis points to 4.01%. West Texas Intermediate crude rose 3.1% to $76.65 a barrel.
Despite the decline in stocks, two of Wall Street’s top strategists have become more optimistic about signs of a strong labor market, economic resilience and lower interest rates.
Morgan Stanley’s Michael Wilson lifted his view of what he called cyclical stocks relative to their safer defensive peers, noting Friday’s blowout payrolls data and expectations of more cuts from the Fed. A peer at Goldman Sachs Group Inc., David Kostin upgraded his 12-month target for the benchmark to 6,300 points from 6,000, representing a gain of about 10% from current levels.
“Next week is pivotal for the market, with key CPI data and the start of earnings season, and we expect these events to confirm the bullish attitude in the market and justify our expectations for the S&P 500 to reach 6,150 by the end of the year.” James Demmert at Main Street Research. “The strong job numbers from Friday are a reminder to investors that the economy is vibrant, and the risk of a recession is not a factor.”
The third-quarter earnings season is expected to be fertile ground for investors who take an active approach to managing their money, according to strategists at Bank of America Corp.
The options market posted its biggest after-earnings gain in single-stock levels in BofA’s data history since 2021, while S&P 500 Index volatility remained low, the team led by Ohsung Kwon said Monday in a note to clients.
“This coming earnings season will be a good environment for stock pickers,” he said.
“The likelihood is increasing that US economic performance will continue to ‘heat’ until 2025 and the Fed will tolerate this heat, if inflation does not accelerate, so it is good for risk assets,” said Jason Draho at UBS Global Wealth Management.
But navigating that environment is not without its challenges, he said.
“While investors welcomed the strong job report because it eased concerns about the labor market cooling, data that suggests economic re-acceleration will stoke the fear that the economy is hot at risk of overheating,” Draho said.
Company Highlights:
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Chevron Corp. has agreed to sell its stake in oil sands and shale assets in Western Canada to Canadian Natural Resources Ltd. for $6.5 billion.
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Casino shares gained after Wynn Resorts Ltd. received a commercial game operator license in the United Arab Emirates.
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Air Products and Chemicals Inc. rose after the Wall Street Journal reported activist investor Mantle Ridge had more than $1 billion in shares in the company, according to people familiar with the matter.
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Apollo Global Management Inc. agreed to buy Barnes Group Inc. in an all-cash transaction that valued the technology and aerospace manufacturer at about $3.6 billion.
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Rivus Pharmaceuticals Inc., a drug developer focused on treating obesity, is considering a U.S. initial public offering in 2024, according to people familiar with the matter.
This week’s highlights:
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Food speakers include Raphael Bostic, Susan Collins, Philip Jefferson and Adriana Kugler on Tuesday
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food minutes, Wednesday
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Fed speakers include Lorie Logan, Raphael Bostic, Austan Goolsbee and Mary Daly on Wednesday
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US initial jobless claims, CPI, Thursday
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Food speakers include John Williams and Thomas Barkin on Thursday
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US PPI, University of Michigan consumer sentiment, is
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JPMorgan, Wells Fargo kicked off the earnings season for big Wall Street banks on Friday
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food speakers include Lorie Logan, Austan Goolsbee and Michelle Bowman, there
Some of the main movements in the market:
Savings
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The S&P 500 fell 0.3% at 11:32 am New York time
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Nasdaq 100 down 0.3%
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Dow Jones Industrial Average down 0.4%
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Stoxx Europe 600 up 0.2%
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The MSCI World Index was unchanged
currency
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The Bloomberg Dollar Spot Index was little changed
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The euro was unchanged at $1.0974
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The British pound fell 0.3% to $1.3080
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The Japanese yen rose 0.4% to 148.12 per dollar
Cryptocurrencies
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Bitcoin rose 2% to $63,846.32
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Ether rose 2.1% to $2,490.11
Bond
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The yield on 10-year Treasuries advanced five basis points to 4.01%
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Germany’s 10-year yield advanced four basis points to 2.25%
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UK 10-year yields advanced seven basis points to 4.20%
Commodity
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West Texas Intermediate crude rose 3.1% to $76.65 a barrel
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Spot gold fell 0.3% to $2,646.88 an ounce
This story was produced with the help of Bloomberg Automation.
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