Stocks opened higher Wednesday as bad-news-is-good-news jobs data lowered expectations for another rate hike at the next Fed meeting. Sentiment also got a lift as Treasury yields retreated, though one benchmark notably lagged behind its peers as oil prices plummeted.
ADP this morning said that the U.S. added 89,000 private payrolls in September, the slowest pace of growth since January 2021 and well below economists' forecasts for a gain of 150,000. Additionally, year-over-year wage growth decelerated to 5.9% from the 6% increase seen in August.
"The ADP release should always be taken with a pinch of salt ahead of the U.S. jobs report on Friday and I have no doubt today's is being viewed no differently," says Craig Erlam, senior market analyst at OANDA. "If it can be replicated later this week then people will certainly sit up and take notice, but at this moment, it's just another ADP number that will probably be well off the nonfarm payrolls report."
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Rate-hike expectations, oil prices drop
While the ADP report signaled cooling in the labor department, activity in the services sector remains strong. Data from the Institute for Supply Management (ISM) showed its services sector index fell to 53.6 in September from 54.5 in August, though it held above the 50 level that indicates expansion.
Today's data helped lower the probability the Fed will raise interest rates by a quarter-percentage point at its November meeting. According to CME Group, futures traders are now pricing in a 20% chance for a rate hike next month, down from yesterday's reading of 28.2%.
Additionally, Treasury yields retreated from their decade-plus highs, with the yield on the 2-year government note falling 9.4 basis points to 5.054% and the yield on the 10-year bond sinking 6.9 basis points to 4.733%. (A basis point = 0.01%.)
This had an outsized effect on the rate-sensitive Nasdaq Composite, which rallied 1.4% to 13,236, while the broader S&P 500 rose 0.8% to 4,263. The blue chip Dow Jones Industrial Average underperformed, adding 0.4% to 33,129 as oil major Chevron (CVX) tumbled 2.3%.
The energy sector (-3.3%) took a big hit today as U.S. crude futures fell 5.6% to $84.22 per barrel, their lowest settlement in a month. In addition to Chevron, energy stocks Occidental Petroleum (OXY, -3.9%) and Exxon Mobil (XOM, -3.7%) were two of Wednesday's notable decliners.
Apple gets a rare downgrade on valuation concerns
In other single-stock news, Apple (AAPL) opened lower this morning before closing up 0.7% after KeyBanc analyst Brandon Nispel downgraded the tech giant for the first time in two years. Specifically, Nispel lowered his rating on AAPL stock to Sector Weight from Overweight, the equivalents of Hold and Buy, respectively, citing expectations of slowing iPhone sales in the near term.
Additionally, Nispel pointed to Apple's valuation as another reason for the downgrade. Although shares are down nearly 12% since late July, they are still trading at 29 times forward earnings, well above Apple's five-year average of 24. "We believe in order to justify upside to shares, peak valuations need to be applied or its growth profile needs to inflect higher," the analyst wrote in a note to clients.
Downgrades for Apple are rare, with the majority of Wall Street bullish on the blue chip stock. Of the 45 analysts covering AAPL tracked by S&P Global Market Intelligence, 29 say it's a Strong Buy or Buy vs eight who have it at Hold and three who call it a Sell or Strong Sell. This works out to a consensus Buy recommendation.
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