Stocks Fall as Traders Dial Back Fed-Cut Wagers: Markets Wrap

(Bloomberg) — Stocks fell as traders trimmed bets on Federal Reserve rate cuts, sending Treasury 10-year yields above 4%. Oil rallied as the market waited to see if Israel will retaliate against Iran for a missile attack last week.

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In the wake of surprisingly strong job growth for September, expectations for a continued slowdown in inflation reinforced speculation that policymakers will opt for a smaller rate reduction next month. Money markets no longer see another half-point cut this year, while a quarter-point reduction in November that was seen as certain is now priced at a 86% probability.

“Friday’s strong jobs report not only appeared to kill any chance of a 50-basis-point rate cut in November, it kickstarted chatter about the Fed leaving rates unchanged if economic data continues to come in hotter than expected,” said Chris Larkin at E*Trade from Morgan Stanley. “But as last week showed, geopolitics can’t be ignored — any escalation of the situation in the Middle East has the potential to ramp up volatility.”

The S&P 500 fell to around 5,730. Amazon.com Inc. slipped after a rare analyst downgrade that cited concerns over margin trends into next year, which growth in the cloud computing business is unlikely to compensate for. Pfizer Inc. climbed on a news report that activist investor Starboard Value has taken a stake of about $1 billion in the drugmaker.

Treasury 10-year yields rose six basis points to 4.02%. West Texas Intermediate crude climbed 1.8% to $75.70 a barrel.

Despite the drop in stocks, two of Wall Street’s top strategists have turned more optimistic on signs of a robust labor market, economic resilience and easing interest rates.

Morgan Stanley’s Michael Wilson raised his view on so-called cyclical stocks relative to safer defensive peers, noting Friday’s blowout payrolls data and expectations of more cuts from the Fed. His peer at Goldman Sachs Group Inc., David Kostin upgraded his 12-month target for the benchmark to 6,300 points from 6,000, implying gains of about 10% from current levels.

The third-quarter earnings season is expected to be fertile ground for investors who take an active approach to managing money, according to strategists at Bank of America Corp.

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Options market is pricing in biggest post-earnings implied move at the single stock level in BofA data history since 2021, while S&P 500 Index volatility remains low, team led by Ohsung Kwon said Monday in a note to clients.

“This upcoming earnings season is set to be a great environment for stock pickers,” he noted.

The balance of risks has moved in favor of cyclicals, which could help reignite “broadening” dynamics, Citigroup says. The bank’s strategists move to balance exposure to quality/growth in their overweight US stocks stance, while adding cyclicality by raising European equities ex-UK to overweight.

Corporate Highlights:

• Chevron Corp. agreed to sell stakes in oil sands and shale assets in Western Canada to Canadian Natural Resources Ltd. for $6.5 billion.

• Casino stocks gained after Wynn Resorts Ltd. received a commercial gaming operator’s license in the United Arab Emirates.

• Air Products and Chemicals Inc. climbed after the Wall Street Journal reported activist investor Mantle Ridge has a more than $1 billion stake in the company, citing people familiar with the matter.

• Apollo Global Management Inc. agreed to buy Barnes Group Inc. in an all-cash transaction that values the technology and aerospace manufacturer at about $3.6 billion.

Key events this week:

• Fed speakers include Raphael Bostic, Susan Collins, Philip Jefferson and Adriana Kugler, Tuesday

• Fed minutes, Wednesday

• Fed speakers include Lorie Logan, Raphael Bostic, Austan Goolsbee and Mary Daly, Wednesday

• US initial jobless claims, CPI, Thursday

• Fed speakers include John Williams and Thomas Barkin, Thursday

• US PPI, University of Michigan consumer sentiment, Friday

• JPMorgan, Wells Fargo kick off earnings season for the big Wall Street banks, Friday

• Fed speakers include Lorie Logan, Austan Goolsbee and Michelle Bowman, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3% as of 10:32 a.m. New York time

• The Nasdaq 100 fell 0.3%

• The Dow Jones Industrial Average fell 0.4%

• The Stoxx Europe 600 rose 0.1%

• The MSCI World Index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0975

• The British pound fell 0.4% to $1.3074

• The Japanese yen rose 0.3% to 148.20 per dollar

Cryptocurrencies

• Bitcoin rose 2.5% to $64,163.25

• Ether rose 2.9% to $2,509.73

Bonds

• The yield on 10-year Treasuries advanced six basis points to 4.02%

• Germany’s 10-year yield advanced five basis points to 2.26%

• Britain’s 10-year yield advanced eight basis points to 4.21%

Commodities

• West Texas Intermediate crude rose 1.8% to $75.70 a barrel

• Spot gold fell 0.4% to $2,641.82 an ounce

This story was produced with the assistance of Bloomberg Automation.

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