October 7th Market Overview

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Happy Monday everyone.

The week's kicking off with a bang, but not the kind we'd hoped for. Today's market is in the red, with the Dow taking a 400-point nosedive. We're seeing oil prices push further up and Treasury yields jump past 4%, stirring up some market jitters. F

From activist investors shaking things up to hurricanes driving unexpected stock moves, there's a lot to unpack.

Lets dig in…

Executive Summary

• Dow Jones ▼ 424 points (-1%), S&P 500 ▼ 1%, Nasdaq Composite ▼ 1.2% as rising yields and oil prices weigh on sentiment

• 10-year Treasury yield surpasses 4% for the first time since August, signaling potential economic headwinds

• Energy sector shows resilience, rising 0.4% amid broader market declines

• The market is bracing for key economic data releases and earnings reports this week

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Market Overview

U.S. stocks retreated today, giving back gains from the previous week. The Dow dropped 424 points, or 1%, while the S&P 500 and Nasdaq fell 1% and 1.2% respectively.

This pullback comes after a bumpy week that saw the S&P 500 eke out a modest 0.2% gain, marking its fourth consecutive positive week.

Key Market Drivers

1. Rising Treasury Yields: The benchmark 10-year Treasury yield climbed to 4.028%, breaching the 4% mark for the first time since August. This surge is putting pressure on equity valuations and raising concerns about potential economic slowdown.

2. Oil Price Surge: U.S. crude prices jumped over 3%, settling above $77 per barrel due to ongoing tensions in the Middle East. This increase is fueling inflation worries and impacting consumer-focused sectors.

3. Earnings Expectations: Market analysts suggest that companies may be tempering third-quarter earnings expectations to set up beatable forecasts, contributing to current market weakness.

4. Hurricane Milton: The intensification of Hurricane Milton to a Category 5 storm is influencing certain stocks, particularly in the insurance and power generation sectors.

Stock Spotlight

1. $PFE: Pfizer shares climbed nearly 3% after activist investor Starboard Value took a $1 billion stake, signaling potential strategic changes.

2. $SMCI: Super Micro Computer surged 15% following the announcement of significant GPU deployments for AI infrastructure, highlighting the ongoing demand for advanced computing solutions.

3. $SRHC: Scholar Rock shares skyrocketed over 300% after positive phase three trial results for its spinal muscular atrophy treatment, showcasing the potential for biotech breakthroughs.

4. $GNRC: Generac Holdings jumped 9% as Hurricane Milton intensified, boosting demand expectations for backup power generators.

5. $AMZN: Amazon’s stock slumped nearly 2.9% following a Wells Fargo downgrade to equal weight from overweight, citing slowing growth and increased competition from $WMT.

Other Magnificent 7 Updates

• $AAPL: Shares declined 1.4% after Jefferies downgraded the stock to hold from buy, citing high expectations for iPhone 16 and 17 models.

• $TSLA: Tesla shares dropped 6.6% amid cautious sentiment ahead of its upcoming robotaxi event scheduled for Thursday.

Other Notable Company News

• $CPB: Campbell Soup received an upgrade from Bernstein, citing potential benefits from increased consumption of protein-rich foods due to GLP-1 drug usage.

• $LYFT: Lyft faced analyst caution as investors await Tesla’s advancements in autonomous vehicles, highlighting the competitive landscape in ride-sharing and self-driving technology.

• $HSY: Hershey shares fell around 2% following Bernstein’s downgrade based on changing consumer behavior trends, particularly related to GLP-1 drug effects on snacking habits.

Sector Watch

Bond Market

The yield spread between the 10-year and 2-year Treasury notes is narrowing, approaching levels that could signal negative sentiment. While the curve has recently normalized, the current trend warrants close monitoring as it could impact economic forecasts and market sentiment.

Policy Watch

Goldman Sachs has reduced its 12-month U.S. recession probability to 15%, citing the strong September jobs report and a falling unemployment rate. This adjustment reflects growing confidence in the economy’s resilience amid tightening monetary policy.

Investors are now focusing on the Federal Reserve meeting minutes due Wednesday and the Consumer Price Index report on Thursday, which will likely influence the Fed’s policy outlook as central banks globally navigate inflationary pressures.

What to Watch

1. Federal Reserve Minutes (Wednesday): These minutes will provide insights into the Fed’s thinking on interest rates and inflation, potentially impacting market expectations for future policy decisions.

2. Consumer Price Index (Thursday): This key inflation indicator could influence the Fed’s stance on interest rates and affect various sectors, particularly consumer-focused stocks.

3. Earnings Reports: Keep an eye on results from $DPZ (Thursday) and financial giants $JPM, $BLK, and $WFC (Friday) for insights into consumer spending and the health of the financial sector.

4. Tesla’s Robotaxi Event (Thursday): This event could provide crucial information on Tesla’s autonomous vehicle strategy, potentially impacting not only $TSLA but also other automotive and tech stocks.

5. Hurricane Milton’s Impact: Monitor insurance stocks ($ALL, $TRV, $CB) and utilities as the storm progresses, potentially affecting regional economic activity and specific company performances.

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Note: This newsletter is intended for informational purposes only.