Shutdown Averted, Treasury Yields Flirt With 5%, Strong Payrolls Add to Fed Tightening Risk: The Week In The Markets

A week filled with significant events impacting the markets culminated in an unexpectedly strong September jobs report.

Government Shutdown Averted; House Ousts McCarthy: The U.S. Congress managed to avoid a dramatic government shutdown just hours before the midnight deadline Oct. 1 by passing a stopgap funding bill. This bill ensures the continuation of government operations through Nov. 17, excluding new funding for border security and Ukraine. On Tuesday, the House of Representatives made a historic decision to oust Speaker Kevin McCarthy, following a motion initiated by Rep. Matt Gaetz (R-FL) in response to McCarthy’s collaboration with Democrats to prevent a government shutdown.

Treasury Yields Surge, Bond Market Turmoil Persists: Throughout the week, yields across the Treasury curve continued to rise. The 10-year Treasury yield surged past 4.75%, reaching its highest level in 16 years. On Friday, the 30-year yield crossed the 5% threshold, driven by a jobs report that exceeded expectations. Funds and ETFs investing in long-dated Treasury bonds such as the PIMCO 25 Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund ZROZ or the iShares 20+ Year Treasury Bond ETF TLT have now lost more than 50% of their value since March 2020.

Non-Farm Payrolls Significantly Exceed Estimates, Indicating Strong Labor Market: The September jobs report showed stronger-than-anticipated employment growth. Non-farm payrolls increased by 337,000 last month, marking the largest monthly gain since January and far surpassing the expected 170,000. August NFPs were revised upward to 227,000, indicating a robust pace of hiring throughout late summer. As a result of the impressive jobs number, economists now see rising risks of further Federal Reserve tightening this quarter.

Walmart Reports Slight Decrease In Food Demand Due To Weight-Loss Drugs: On the consumer front, Walmart reported a decrease in shopping demand attributed to the use of weight-loss and appetite-suppressing drugs such as Ozempic and Wegovy, manufactured by Novo Nordisk A/S NVO. Shares of beverage giants like The Coca-Cola Company KO and PepsiCo Inc. PEP had their worst-performing week since May 2022.

Exxon Mobil Eyes Acquisition Of Pioneer Natural Resources: Oil giant Exxon Mobil Corp. (NYSE XOM) is considering acquiring Pioneer Natural Resources Company PXD to strengthen its position in the U.S. energy sector. The potential agreement could be valued at up to $60 billion, potentially making it the largest takeover in the world this year. Shares of the target company, Pioneer, rose by as much as 10% on Friday.

Market Highlights: The S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY, rebounded from four consecutive weeks of declines. Similarly, the Nasdaq 100, monitored via the Invesco QQQ Trust QQQ, posted weekly gains and recorded its strongest session since late August on Friday.

Notable sectors that displayed strength this week included the Technology Select Sector SPDR Fund XLK, which rose by 3%, the Communication Services Select Sector SPDR Fund XLC, gaining 2.1%, and the Health Care Select Sector SPDR Fund XLV, which registered a 1.1% increase.

Among the mega-cap stocks in the S&P 100, top performers for the week included Alphabet Inc. GOOG GOOGL, Nvidia Corp. NVDA, Eli Lilly & Company LLY, and Meta Platforms Inc. META, all of which posted gains exceeding 5%. NextEra Energy Inc. NEE was the laggard, down over 12% for the week.

What to Watch in the Week Ahead: All eyes are on the Consumer Price Index report for September set to be released on Thursday. This report will mark the last crucial piece of economic data ahead of the Nov. 1 Fed meeting. Economists predict that the annual inflation rate will slightly ease from 3.7% to 3.6% in September, and core inflation is expected to fall from 4.3% to 4.1% on a year-over-year basis. 

Other relevant economic releases include the Producer Price Index report on Wednesday, where a monthly decline from 0.7% to 0.3% is expected, and the Michigan Consumer Sentiment estimate for October on Friday.

On the earnings front, PepsiCo will report on Tuesday, while Thursday will feature Infosys Limited INFY, Fastenal FAST, Delta Air Lines DAL, Walgreens Boots Alliance WBA, and Domino’s Pizza DPZ. Some major financial institutions will report Friday, include JPMorgan Chase & Co. JPM, BlackRock BLK, Citigroup C, Wells Fargo WFC, PNC Financial Services PNC, along with UnitedHealth Group UNH, and The Progressive Corp PGR.

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