Wall Street Lunch: Job Market Keeps Humming As Payrolls Surge

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The Bureau of Labor Statistics dropped a hammer on the markets, but stock and bond buyers responded – with vigor.

September nonfarm payrolls rocketed up by 336,000. That’s the biggest monthly gain since January and double what economists predicted. The unemployment stayed steady at 3.8%.

Janney’s Guy LeBas says “This is yet one more data point consistent with a productivity boom."

The strong jobs number initially sparked a surge in Treasury yields, with the bond market jittery about strong data keeping the Fed in a higher-for-longer mode. Those gains in rates kicked the chair out from under stocks.

In terms of market reaction right as the number hit, hedge fund trader Tom Hearden simply tweeted "gnite."

But as the trading day has worn on, yields have fallen back stocks have marched into the green.

The 10-year Treasury (US10Y) is below 4.8% after nearing its weekly and cycle high of 4.9%.

The S&P 500 (SP500), which had been down 1% premarket, is up +1%. Surprisingly the index didn’t test its 200-day moving average around 4,200. The Nasdaq (COMP.IND) is up +1.3% and the Dow (DJI) up +1%.

Info Tech (XLK), Industrials (XLI) and Financials (XLF) are the big winners, with all sectors in the green.

Traders may have been leaning in too much on a strong number, prompting a scramble to cover shorts. The question is whether this is just a bounce in an oversold market or whether stocks are finding a bottom.

Robert Schein, CIO of Blanke Schein Wealth Management says they “remain cautious on markets throughout October, as this is a seasonally volatile month of the year for markets” with earnings season the next big catalyst.

The Fed’s December meeting was initially back to a coin toss between a quarter-point hike and no move, according to the swaps market. But odds are now 60-40 they stay steady.

Stock buyers may be betting on September wages keeping the FOMC at bay. Average hourly earnings growth was tame, especially in light of the payrolls numbers, up just 0.2% to 4.2% annually.

But Pantheon Macro says this is “not sufficient proof for the Fed that wage gains are slowing, because the AHE data are wild and unreliable.” They say what matters is the ECI report on Halloween where they expect to see a further softening.

And one more thing to note for the weekend, restaurant and bar employment jumped back to pre-pandemic levels.

Among active stocks, Formula One Group (FWONA) caught an upgrade to Buy at Citi, which said any concerns about sports rights renewals are "overblown." Analyst Jason Bazinet raised his rating from Neutral and said that concerns over Vegas Grand Prix media rights and the recent renewal for WWE rights with NBCUniversal have raised investor concern about U.S. sports rights. But those appear to be unfounded.

Microsoft (MSFT)- backed OpenAI is thinking of manufacturing its own AI chips and even evaluated a potential acquisition target. The maker of ChatGPT has not yet decided to move forward, Reuters reported, citing sources. But since at least last year it has explored several options to solve the shortage of expensive AI chips that it relies on.

And Tesla (TSLA) dropped prices for its Model 3 compact sedan and Model Y SUV in the U.S. by roughly 2.7% to 4.2% in an effort to boost demand .The move comes after its Q3 deliveries missed estimates.

And in the Wall Street Research corner

BofA Securities updated its Alpha Surprise model portfolio, with a fair amount of new energy names while jettisoning some consumer discretionary selections.

The quantamental portfolio looks for cheap, out-of-consensus stocks using analyst earnings estimates.

Devon Energy (DVN), Diamondback (FANG) and Exxon (XOM) are among additions, along with Airbnb (ABNB) and 3M (MMM).

Starbucks (SBUX), Delta (DAL), Dollar General (DG) and J&J (JNJ) were some of the deletions. Check out the link in Show Notes for the story with the full list.

And BMO screened for dividend stocks using multiple factors that honed in on income names that work in times of high volatility and high interest rates.

Strategist Brian Belski says: "While volatility has been relatively muted this year, we continue to believe there is a high likelihood that increased bouts of volatility will reappear in the US equity markets in the coming months given the amount of headline risk currently out there."

Going back to 1990, their model "fared significantly better than the overall market during periods of S&P 500 losses." And when the 10-year yield was above its 3-year moving average it "posted an average one-year total return … about 2% higher than the overall market."

He adds that "while the yields are likely to remain above the very low levels investors have become used to over the past decade, this certainly does not represent a poor backdrop for all dividend strategies."

Among the 15 stocks on the list are AbbVie (ABBV), Microsoft and Broadcom (AVGO).

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.