Stocks were down, but the market was very bifurcated.
The S&P 500 fell 0.96%, a move almost completely a result of the down-move in large cap tech stocks, as the Nasdaq fell 2.22%. Bullishly, the 10-Year Treasury yield rose to 0.69% from 0.67% as inflation expectations edge gently higher. Yields rise when prices fall.
Here were the heavy events that transpired Friday, negative and positive, that moved the market.
President Trump tested positive for coronavirus and former Vice President Biden’s lead in the polls went to above 7 percentage points from just above 6 points. Biden’s policies, generally viewed as stock market negative, are more likely, though investors have digested that a gridlocked Congress may make policy changes less gridlocked. Some on Wall Street do not believe the market sell-off has much to do with the election.
Cyclical stocks, after trading down in the morning on a jobs numbers miss, rose aggressively by the end of the day. Oil stocks rose more than 1%, while bank stocks, as obsessed by bank ETF (KBWB) - Get Report, rose more than 2%. The yield curve expanded aggressively.
The jobs report showed a net gain in the month of September of 661,000, missing estimates of 800,000. That called the V-shaped economic recovery into question, but as investors digested the data throughout the day, many realized there were subtle clues in the jobs report pointing towards a stronger labor market than the “headline” number conveys.
Plus, House Speaker Nancy Pelosi said a fiscal stimulus deal, which could keep the currently fast recovery on track, should be passed through the Senate soon.
FAANG stocks sold off, down more than 2% on the day. Some on Wall Street pose that the hot IPO market is creating growth stock alternatives to FAANGS, which may have pulled forward demand for a lot of their at-home services this year, meaning their markets may mature faster than previously anticipated. The question: will potential earnings multiple pressure negatively offset strong near-term earnings growth? Meanwhile, the IPO market is expected to be $80 billion this year, against this biggest annual market of $60 billion since 1990.
And when big tech falls, the S&P 500 has trouble moving higher because tech has such a heavy weighting in the aggregate market cap.
Here’s what Wall Street’s Saying:
Seema Shah, Chief Strategist, Principal Global Investors:
"Today’s non-farm payroll number provides additional credence to the view that the US economic recovery is losing some momentum. Of course, after having lost over 22 million jobs in the space of March and April, the US labour market has made huge gains over recent months. Yet those gains only equate to around half of those pandemic job losses having been retraced. The first few months after reopening was always going to see the easy economic gains. For activity to rise after essentially shutting down for two months was never going to be too tough. Now is when additional positive economic surprises become harder to come by. Economic scarring is likely to become more apparent in Q4 as more companies finally start to throw in the towel, reporting closures and job cuts. Generous unemployment insurance and benefits have helped keep loan delinquencies low but, with permanent job losses clearly rising and still no sign of an additional fiscal stimulus package, the struggles will become more widespread and evident."
Marc Pfeffer, Chief Investment Officer, CLS Investments to TheStreet:
“The headline [jobs] number was certainly weaker than expected. You had revisions up last month. You had a season factor that weighed this month. That was part of the number coming in less than expected. The unemployment rate dropped to 8%. While the headline number was weaker than expected, I didn’t look at that as a disappointment. In the bond market, you’ve seen a reversal. Bond yields have moved up a little bit. I think the jobs market has come back faster than almost everyone has expected.”
Ken Berman, Strategist, Gorilla Trades:
"The highly anticipated government jobs report was mixed as even though the headline non-farm payrolls number missed expectations, the unemployment rate fell below 8% and there were further positive surprises “under-the-hood”. Payroll growth for the past two months was revised notably higher, the number of temporary unemployed fell by over 1.5 million, so although the speed of the recovery is slowing, the impact of the reopening push is apparent."
Mark Haefele, Chief Investment Officer, Global Wealth Management, UBS:
"The need to quarantine will reduce President Trump’s ability to hit the campaign trail in swing states in the coming weeks. There is also uncertainty about whether the remaining planned presidential debates will go ahead. However, it is worth noting that, historically, the result of debates has not had a strong bearing on the result of the election itself. The positive test could have an impact on voters’ views on the appropriateness of public health policy through the pandemic."