October 1, 2024

The market ended higher after a choppy day on either side of unchanged and this followed a start to the week for financial markets in Asia, where Japanese stocks tumbled and Chinese indexes soared and this pattern continued what we saw for the past couple of weeks.

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The Dow was able to sneak out a minor victory of 17 points to a new record high of 42,330 led by a strong gain in AAPL, plus HD, MSFT and UNH after being down by as much as 384 during the press briefing with Fed Chairman Jay Powell. The S&P advanced by 24 to 5762 led by those large technology gains plus some of the others mentioned above and it set its 43rd new high this year with its fifth straight winning month and fourth straight winning quarter.

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The Nasdaq gained 69 to 18,189 also helped by AAPL and MSFT while the Russell 2000 Index of small stocks added 5 to 2230 and the VIX ended lower down to 16.73, so overall it was a good day after all of the uncertainty that took place.

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The market has catapulted to records on hopes the slowing U.S. economy can keep growing while the Federal Reserve keeps lowering interest rates to offer it more juice. A big test will arrive on Friday, when the U.S. government offers its latest monthly update on the job market.

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An overriding worry on Wall Street is whether the economy may already be heading for a recession. Even though the Fed cut rates earlier this month and has indicated more relief is on the way, U.S. employers have already begun cutting back on their hiring. Before this month, the Fed had kept interest rates at a two-decade high in hopes of slowing the economy enough to stamp out high inflation.

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Some “experts” are expecting Friday’s report to show hiring in September was stronger than the 146,000 growth in payrolls that economists were broadly forecasting.

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In the past, a stronger-than-expected number could have hurt the stock market by fanning worries about upward pressure on inflation. Now, though, it would likely be welcomed as a signal that a recession shouldn’t be as big a worry.

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Interest rates and the strength of the economy are usually the two main levers that set prices for stocks. In Asia, the levers were pulling in opposite directions.

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Japan’s Nikkei 225 slumped 4.8% on worries the country’s incoming prime minister will support higher interest rates and other policies that investors see as less market-friendly. Some have expressed support for the Bank of Japan’s move to raise interest rates from their near-zero level, which puts upward pressure on the value of the Japanese yen. A stronger yen can hurt profits for Japanese exporters, which make sales in other currencies and then convert them back into yen.

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Toyota Motor’s stock fell 7.6% in Tokyo, while Honda Motor’s dropped 7%. Monday.

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Stellantis, the company that owns the Jeep brand and others, tumbled 14.7% in Milan after lowering its profit forecast as it cited investments to turn around its U.S. operations and increased Chinese competition.

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That in turn helped drag down automakers F and GM.

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In the meantime, Chinese stocks like BIDU and PPD continued to gain after their very long trips lower.

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A 5 point rise for AAPL helped offset such losses and was the strongest force lifting the S&P to its latest record. After weakening in late July with other Big Tech stocks amid worries their prices had shot too high. The stock has been climbing back toward its all-time closing high of $234.82. It finished Monday at $233.00.

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In China, meanwhile, indexes soared by 8.1% in Shanghai and 2.4% in Hong Kong following the latest announcements of stimulus for the world’s second-largest economy. It was the best day for Shanghai stocks in nearly 16 years.

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China’s central bank announced moves on Sunday to ease mortgage rates for existing home loans by the end of October. That followed a number of announcements last week from China’s central bank and government intended to prop up the Chinese economy, whose growth has been lagging in part because of the weight of a struggling real estate sector.

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Markets in mainland China will be closed today through October 7th through October 7th for a holiday marking 75 years of communist rule.

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In the bond market, U.S. Treasury yields rose after investors took remarks from Fed Chair Jerome Powell as a hint that coming cuts to interest rates may be more traditional sized.

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The Fed began its rate-cutting campaign with a larger-than-usual reduction of half a percentage point, and many traders had built expectations that the next meeting in November could yield a similar sized reduction. That was even though Fed policy makers had already indicated they were planning two more cuts this year of the traditional size of a quarter of a percentage point.

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But Powell said again on Monday that rate cuts are not something the Fed needs to work quickly on. After his comments, traders were betting on just a 35% probability the Fed will cut rates by another half a percentage point in November, which is down from a 53% chance seen the day before, according to data from CME Group.

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The yield on the 10-year Treasury rose to 3.78% from 3.75% late Friday. The two-year yield, which more closely tracks expectations for what the Fed will do with short-term rates, climbed to 3.63% from 3.56%.

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Earnings reports showed that CCL and Stellantis were lower; today – Dow component NKE lower; Wednesday – CAG; Thursday – STZ.

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Economic reports will have: today – August construction spending; Thursday – August factory orders, weekly jobless claims; Friday – the big one, namely the September jobs report which is supposed to show a 145,000 gain and an unemployment rate of 4.2%.