The S&P 500 Index ($SPX) (SPY) Tuesday closed down by -0.93%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down by -0.41%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down by -1.43%.

Stocks on Tuesday posted moderate losses, with the S&P 500 and Nasdaq 100 falling to 1-week lows.  Escalating Middle East tensions sparked long liquidation pressure in stocks on Tuesday.  Israel began a limited ground assault into Lebanon, and Iran launched a ballistic missile attack against Israel.  Tuesday’s US economic news was mixed for stocks as Aug JOLTS job openings rose more than expected, but the Sep ISM manufacturing index was weaker than expected.

The US Aug JOLTS job openings rose +329,000 to 8.04 million, showing a stronger labor market than expectations of 7.693 million.

The US Sep ISM manufacturing index was unchanged from Aug at 47.2, weaker than expectations of an increase to 47.5.  The Sep ISM prices paid sub-index fell -5.7 to a 9-month low of 48.3, weaker than expectations of 53.5. 

US Aug construction spending unexpectedly fell -0.1% m/m, weaker than expectations of +0.2% m/m.

Corporate news Tuesday was mixed for stocks.  Apple closed down more than -2% after Barclays said the availability of the iPhone 16 suggests “softer demand” relative to last year.  Also, ZIM Integrated Shipping Services Ltd fell more than -5% after dockworkers began a strike and walked out of every major port in the US East and Gulf coasts.  On the positive side, energy stocks rose after WTI crude oil jumped more than +2% Tuesday on Middle Esat tensions.  Also, the escalation of Middle East tensions boosted defense stocks. 

Signs of easing global inflation pushed bond yields lower and supported stocks after the Eurozone Sep CPI eased to +1.8% y/y, below the ECB’s +2.0% target and the smallest increase in almost 3-1/2 years.   

The markets are looking ahead to Friday's monthly US payroll report for market direction.  Sep nonfarm payrolls are expected to climb +146,000, and the Sep unemployment rate is expected to remain unchanged at 4.2%.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 40% for a -50 bp rate cut at that meeting.

Overseas stock markets Tuesday settled mixed.  The Euro Stoxx 50 closed down by -0.93%.  China's Shanghai Composite is closed for the week-long National Day holiday.   Japan's Nikkei Stock 225 closed up by +1.93%.

Interest Rates

December 10-year T-notes (ZNZ24) Tuesday closed up by +13 ticks.  The 10-year T-note yield fell -4.2 bp to 3.739%.  Dec T-notes rallied to a 1-week high Tuesday, and the 10-year T-note yield fell to a 1-1/2 week low of 3.694%.  T-notes rose Tuesday on carryover support from a rally in 10-year German bunds to an 8-3/4 month high.  Easing US price pressures were also bullish for T-notes after the Sep ISM prices paid sub-index fell -5.7 points to a 9-month low of 48.3.  Gains in T-notes accelerated Tuesday after US intelligence warned that Iran was about to launch a ballistic missile attack against Israel, which boosted safe-haven demand for government debt.  T-notes fell from their best levels after inflation expectations increased when the 10-year breakeven inflation rate rose to a 2-month high Tuesday of 2.197%. 

European government bond yields Tuesday moved lower.  The 10-year German bund yield fell to an 8-3/4 month low of 2.010% and finished down -8.7 bp at 2.036%.  The 10-year UK gilt yield fell to a 1-week low of 3.913% and finished down -6.3 bp at 3.941%.

The Eurozone Sep S&P manufacturing PMI was revised upward by +0.2 to 45.0 from the previously reported 44.8.

The Eurozone Sep CPI eased to +1.8% y/y from +2.2% y/y in Aug, right on expectations and the slowest pace of increase in almost 3-1/2 years. Sep core CPI eased to +2.7% y/y from +2.8% y/y in Aug, right on expectations.

ECB Governing Council member Rehn said easing inflation pressures and a deteriorating Eurozone economy support the case for the ECB to cut interest rates this month.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 93% for the October 17 meeting.

US Stock Movers

Weakness in chip stocks weighed on the overall market.  ARM Holdings Plc closed down more than -4% to lead losers in the Nasdaq 100.  Also, Nvidia (NVDA), GlobalFoundries (GFS), Micron Technology (MU), Microchip Technology (MCHP), Intel (INTC), and NXP Semiconductors NV (NXPI) closed down more than -3%.  In addition, Advanced Micro Devices (AMD), Lam Research (LRCX), Analog Devices (ADI), KLA Corp (KLAC), Qualcomm (QCOM), Texas Instruments (TXN), and Applied Materials (AMAT) closed down more than -2%.

Humana (HUM) closed down more than -11% after releasing its Medicare Advantage plan for 2025, with Leerink Partners saying the company “meaningfully increased” its maximum out-of-pocket higher than any other insurer, potentially prompting consumers to cancel their Humana plan and switch to cheaper providers. 

Apple (AAPL) closed down more than -2% after Barclays said the availability of the iPhone 16 suggests “softer demand” relative to last year. 

ZIM Integrated Shipping Services Ltd (ZIM) closed down more than -5% after dockworkers began a strike and walked out of every major port in the US East and Gulf coasts.

Dell Technologies (DELL) closed down more than -4% on signs of insider selling after an SEC filing showed CEO and founder Michael Dell sold $1.2 billion of stock last Thursday. 

HP Inc (HPQ) and CDW Corp (CDW) fell more than -3% after Citigroup downgraded the stocks to neutral from buy. 

Charles River Laboratories International (CRL) closed down more than -1% after Citigroup downgraded the stock to sell from neutral with a price target of $175.

Energy stocks rallied Tuesday after WTI crude jumped more than +2%. As a result, APA Corp (APA), Occidental Petroleum (OXY), Marathon Oil (MRO), ConocoPhillips (COP), and Halliburton (HAL) closed up more than +3%.  Also, Diamondback Energy (FANG), Exxon Mobil (XOM), and Schlumberger (SLB) closed up more than +2%.  In addition, Chevron (CVX) closed up more than +1% to lead gainers in the Dow Jones Industrials. 

The escalation of Middle East tensions boosted defense stocks. Northrop Grumman (NOC), L3Harris Technologies (LHX), and Lockheed Martin (LMT) closed up more than +3%.  Also, RTX Corp (RTX) closed up more than +2%.

Paychex (PAYX) closed up more than +4% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q1 adjusted EPS of $1.16, better than the consensus of $1.14.

Steel Dynamics (STLD) closed up more than +2% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $155.

McCormick & Co (MCK) closed up more than +2% after reporting Q3 adjusted EPS of 83 cents, better than the consensus of 67 cents, and raising its full-year adjusted EPS estimate to $2.85-$2.90 from a previous estimate of $2.76-$2.81. 

Ford Motor (F) closed up more than +1% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $13. 

Earnings Reports (10/2/2024)

Conagra Brands Inc (CAG), Novagold Resources Inc (NG), Renovaro Inc (RENB), RPM International Inc (RPM).

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