U.S. equities spent most of the session in the red before a powerful rally pushed most of the major averages into the green by the closing bell.
Overall impression — the bulls and the bears are engaged in testing skirmishes, but neither side wants to make a major offensive ahead of Friday’s September nonfarm payroll report.
The latest update on the health of the job market will be closely watched because of the confusion surrounding a potential interest rate hike from the Federal Reserve before the end of the year.
Futures market odds don’t believe a policy tightening will occur until early 2016. But Fed officials keep talking up the potential for action later this month, or in December.
In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 gained 0.2%, the Nasdaq Composite moved up 0.2% and the Russell 2000 dropped 0.3%.
Defensive sectors lagged, with utilities and telecom stocks putting in the worst performance.
Twitter (NYSE:TWTR) lost 8.4% on the concern that newly appointed CEO Jack Dorsey could be stretched too thin. Meanwhile, Apple (NASDAQ:AAPL) lost 0.7%, although its intraday losses were deeper on reports of a possible iPhone 6s production slowdown in the fourth quarter on tepid demand. That boosted the October $113 AAPL puts recommended to Edge Pro subscribers to a gain of 51% since recommended on Sept. 24.
Continuing the pattern of “all that matters is the stimulus,” the day started with losses after Bloomberg reported that Bank of Japan officials see little immediate need for further policy easing. This comes after a weaker-than-expected industrial production report out of Japan raised hopes of fresh action.
JPMorgan analysts raise the prospect of further monetary policy easing from the BoJ at its Oct. 30 meeting. It had previously expected the BoJ to wait until early 2016 before taking additional action. Evercore ISI expects the BoJ to push rates into negative territory, something the European Central Bank has already done.
It was within this prism that San Francisco Federal Reserve President John Williams’ comments were viewed negatively today. He reiterated comments from earlier in the week that the economy only needs to create around 100,000 jobs per month (vs. the six-month average of 221,000) and that interest rate hikes were likely this year. This is a surprisingly hawkish take from a normally moderate Williams, an influential member of the Federal Open Market Committee.
On the economic front, ongoing strength in U.S. auto sales couldn’t stop the September ISM manufacturing activity index from slipping closer to stall speed moving to 50.1 from 51.1. Survey respondents cited global growth and consumer confidence concerns. Automakers, for their part, posted double-digit sales increases that will likely be enough to push the total annualized car sales rate over 18 million units for the first time in over a decade.
And finally, congress passed a stopgap funding deal that will keep the government running through Dec. 11 — setting up another debt ceiling/shutdown showdown for the end of the year.
The debt ceiling will become an issue at the beginning of November according to the U.S. Treasury.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers.
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