Weekly Wrap

The stock market traded lower through most of the week, sliding under selling interest that was sparked by general profit-taking efforts after a big run in the third quarter and some nervousness related to a worsening geopolitical environment after Iran fired missiles at Israel, which prompted a vow of retaliation.

The geopolitical angst manifested in rising oil prices. WTI crude oil futures settled at $68.15/bbl last Friday and jumped to $74.40/bbl this Friday. This price action boosted the S&P 500 energy sector, which jumped 7.0% this week. 

The three major indices managed to close fractionally higher than last Friday thanks to a rally driven by Friday's release of the the September Employment Situation Report. 

The report showed stronger than expected hiring, a drop in unemployment, and a rise in average hourly earnings. This was consistent with the market's soft landing narrative, which led to a recalibration in rate cut expectations due to the notion that the Fed won't have to act as aggressive going forward compared to the September meeting.

The likelihood of a 50 basis points rate cut at the November FOMC meeting dropped to 0.0% on Friday, down from 32.1% Thursday and 53.3% a week ago, according to the CME FedWatch Tool.

Market participants were also dealing with growth concerns initially that were stirred by the start of the East Coast and Gulf Coast dockworkers strike. The strike was resolved, at least temporarily, by the end of the week. 

Treasury yields moved sharply higher this week. The 10-yr yield jumped 23 basis points to 3.98% and the 2-yr yield settled 37 basis points higher at 3.93%.

Monday: 

For the most part, the stock market was in a restful state in Monday's trade until a late rally effort finished off a very good third quarter.

Losses were relatively modest during the session, even at the lows for the day that occurred around 2:30 p.m. ET after Fed Chair Powell told listeners at an NABE Conference that, if the economy evolves as expected, that would mean two more cuts this year of 25 basis points each. The fed funds futures market had been expecting a total of 75 basis points worth of cuts before the end of the year. That created some knee-jerk selling interest that had the S&P 500 down as much as 0.6% for the day.

The Treasury market reacted with yields backing up. The 2-yr note yield rose nine basis points to 3.65% while the 10-yr note yield jumped five basis points to 3.80%.

The market bounced back just as quickly, however, heartened by the understanding that the Fed will still be cutting rates, and that it will move in a more aggressive manner if necessary. It was the so-called "Fed put" trade that co-mingled with the patented buy-the-dip trade that has proven successful all year.

Tuesday: 

The stock market started the fourth quarter on a weak note. There are growing expectations for consolidation activity after a stellar third quarter and today's headlines provided fuel.

Initial reports indicated that the White House was concerned about a potential Iranian strike on Israel. This concern materialized, but subsequent reports suggested that most of Iran's missiles were destroyed by Israel's defense system.

The price action in equities, bonds, and commodities reflected uncertainty around the situation in the Middle East, but also reflected some relief that today's attacks by Iran were largely unsuccessful.

The major indices moved lower across the board, but closed above their worst levels of the session.

The market-cap weighted S&P 500 declined 0.9% after being down as much as 1.8%.

Other contributing factors in Tuesday's downbeat session included growth concerns that were stirred by the start of the East Coast and Gulf Coast dockworkers strike, along with another contraction reading (sub-50.0%) for the ISM Manufacturing PMI in September.

Wednesday:

The equity market held up well. The S&P 500 (+0.01%), Nasdaq Composite (+0.1%), Russell 2000 (-0.1%) and Dow Jones Industrial Average (+0.1%) traded near prior closing levels through the entire session. The price action was encouraging due to lingering uncertainty around a potential escalation in the Middle East.

Israel said it would retaliate against Iran, but the market wasn't bothered by this. Stocks also had a muted response to the ADP Employment Change Report for September, which didn't impact the market's thinking on a soft landing scenario for the economy. Payroll growth was decent (143,000), wage inflation moderated, hiring was seen in both the goods and service-providing sectors, and across all geographic regions.

Relative strength in the semiconductor space provided some support to the stock market, leading the PHLX Semiconductor Index (SOX) to settle 1.5% higher. The price action also boosted the S&P 500 information technology sector (+0.6%), along with a gain in Apple (AAPL).

Thursday:

The S&P 500 settled a whisker shy of 5,700, down nearly ten points (-0.2%) from Wednesday. The Nasdaq Composite settled flattish while the Dow Jones Industrial Average logged a 0.4% decline and the Russell 2000 fell 0.7%.

There was an element of hesitation in Thursday's trade ahead of Friday's employment report, which may impact the market's thinking on the Fed's rate cut path. The negative bias also stemmed from geopolitical worries, which manifested in further upside action in oil prices.

Treasuries, which usually benefit from geopolitical tension as a safe-haven trade, closed with losses across the curve.

The jump in yields was due in part to the release of the September ISM Non-Manufacturing Index, which beat expectations, but didn't change rate cut probabilities in front of the jobs report.

Semiconductor shares, led by NVIDIA (NVDA), showed relative strength after CEO Jensen Huang told CNBC in an interview after Wednesday's close that demand for Blackwell is "insane."

Friday:

The stock market closed the week with solid gains, which led the Dow Jones Industrial Average to a fresh all-time high. Market participants were responding to Friday morning's release of the September Employment Situation Report.

The report showed stronger than expected hiring, a drop in unemployment, and a rise in average hourly earnings. This was consistent with the market's soft landing narrative, which led to a recalibration in rate cut expectations due to the notion that the Fed won't have to act as aggressive going forward compared to the September meeting.

Treasury yields shot higher in response to the data. The jump in rates didn't deter buying in the stock market, which was also related to buy-the-dip interest after this week's losses.

 Gains in the semiconductor space and mega cap stocks provided some support to the broader market.