Terrorists Attack. Another War Breaks Out.
Terrorist group, Hamas, launched 3,000 rockets and stormed dozens of towns and military bases in Israel over the weekend. Over 600 people, including American and German tourists, were killed with thousands injured in this large scale, surprise assault.
Former U.S. intelligence and military officers told NBC News Saturday that the attacks may have been timed in part to disrupt any U.S.-brokered Israeli-Saudi agreement — a historic agreement to counter Iran.
Israeli Defense Forces responded with force, firing rockets from fighter jets at military targets which leveled nearby buildings. The Palestinian death toll is rising in real-time and estimated in the hundreds. War has been declared in Israel and flights in/out of Israel have been suspended by major airlines. The U.S. is sending war ships into the Persian Gulf as a show of support.
Historically, such conflicts have led to oil price increases and market volatility, as concerns the conflict could spread to additional countries and put world powers (U.S. and Russia) in a second proxy war. Airline stocks may also fall, due to the fear of terrorism spreading into airports and planes.
Last Week's Recap
The recent jobs report indicates a surge in US payrolls double expectations, suggesting a robust labor market and potentially prompting the Federal Reserve to consider an interest rate increase. Over the week, the Dow, S&P 500, and Nasdaq have all seen positive movement.
On Friday, Wall Street saw significant gains, particularly influenced by major tech companies. The Dow Jones surged by over 300 points, and both the S&P 500 and Nasdaq increased by over 1%. Tech companies like Microsoft, Nvidia, and Apple witnessed gains. However, Tesla's value decreased following an adjustment in their vehicle prices, while Exxon Mobil's stock went down amid news of its impending acquisition of Pioneer Natural Resources.
US Adds More Jobs Than Expected
In September, US nonfarm payrolls saw an impressive increase of 336K, surpassing the previous month's revised figure of 227K and outdoing market predictions of 170K. This is the most growth in employment in eight months. The numbers suggests the labor sector is steadily improving while still remaining robust amidst the Federal Reserve's intensifying measures.
The sectors with notable job additions include leisure and hospitality (96K), government (73K), health care (41K), professional and technical services (29K), and social assistance (25K). Meanwhile, sectors like mining, construction, manufacturing, and retail remained relatively stable.
Although major gains were seen in sectors like leisure, hospitality, and government, the Household survey recorded only 86K new jobs, and the unemployment rate stood firm at 3.8%. Discrepancies between different surveys and an increase in part-time roles and multiple jobholders suggest that the job market's health may not be as robust as the headline figures imply.
US Treasury Yield Hits a High
The US 10-year Treasury yield rose above 4.8%, its highest in 16 years, due to signs of a robust labor market fueling expectations that the Federal Reserve will maintain its stringent monetary policy. Global long-term government bonds have faced sales pressure as the belief grows that the Fed won't significantly reduce rates soon. This has led to a notable jump in the 10-year Treasury yield and the 30-year bond yield surpassing 5% for the first time since 2007.
The rise in yields led to a selloff in oil stocks on the belief the Fed's fiscal fortitude would cause demand destruction in the energy markets.
Seasonality Ends & Begins
September is a notoriously bad month for stocks, historically, and often spills into mid-October when the next earnings season begins and the holiday shopping starts to reignite consumer spending. Adding data to the theory of seasonality: Friday, the S&P 500 index broke above its 200-day moving average - a bullish indicator the selloff may be over. However, it's important to note the gains are largely driven by a handful of megacap tech stocks. The equal-weighted S&P 500 index, which owns the same percent of each of the 500 stocks in the index, is actually negative for the year now. Likewise, with war comes market volatility.
-8.91% (1W Chg)
-4% (1M Chg)
+5.59% (1D Chg)
+14.28% (1M Chg)
+3.93% (1W Chg)
+19.75% (1M Chg)
+7.85% (1W Chg)
+95.6% (YoY Chg)
September's Top Bullish Events (1D move)
Pioneer Natural Resources
Pioneer Natural Resources stock value increased by almost 10% Friday following a report that Exxon Mobil is nearing an agreement to purchase Pioneer for approximately $60 billion. In contrast, Exxon's stock decreased by 1%.
Tesla's stock dropped almost 1% Friday following a reduction in the prices of select Model 3 and Model Y in the U.S. Additionally, the company's third-quarter delivery numbers fell short of analysts' predictions. BYD, the EV-maker backed by Warren Buffet, is about to surpass Tesla for the higher number of EV deliveries in a year as well.
MGM Resorts saw a 5% increase on Friday in its stock after addressing a cybersecurity breach from last month. The company revealed on Thursday that the cyber incident in September would lead to approximately $100 million in expenses. However, MGM anticipates that the impact after the third quarter will be negligible.
Rivian Automotive's stock dropped by 19% Thursday following an announcement of a $1.5 billion fundraising effort through convertible notes (debt tht converts to newly issued stock, diluting existing shareholders). The company projected third-quarter revenue of $1.29 billion to $1.33 billion, but is still losing $33,000 on every vehicle it makes.
Shares of Clorox declined by 7.7% Thursday following the company's announcement of a disappointing 1st quarter forecast. Despite improvements in pricing, cost-cutting, and supply chain enhancements, the company's performance was adversely impacted by a cyberattack.
CASE STUDY: Jackson Financial +18% in 2 wks
On August 28th, Jackson Financial was added to S&P 600 Small Cap Index. Two weeks later, the stock was up 18 percent. Why?
The addition to this index is a bullish event. Companies are added because they have grown to a certain size where they now meet the criteria of the index. This requires market cap and revenue growth, both positives for stocks.
In some cases, companies may have a shrinking market cap (the number of shares times the share price) and may fall from an index with a higher market cap, like the S&P 500, which is composed of large cap companies.
In this case, the addition to the index was welcomed by investors and the event often garners media and analyst attention for the stock. The attention often causes buying and the shares rise. Likewise, ETFs are forced to buy shares of the stock if they are modeling the ETF around the S&P index. This also drives the price up.
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