Tech buyers ignored the bond market today. The Nasdaq closed at a record 27,477, up 1.05%, while the 10Y pushed to 5.31%, a fresh 52-week high and its highest level since 2007. The S&P 500 rose 0.66% to 7,774, the Dow added 0.18% and the Russell 2000 gained 0.72%. Last Monday, FedWatch priced near 65% odds of an October hike. After Friday’s 29,000-job payroll miss, traders cut that to 22% and pushed the first hike to December.
THE PULSE
Wall Street spent today working off Friday’s jobs report. September payrolls came in at +29,000 against 84,000 expected, and unemployment ticked up to 4.2%. Institutions priced in a pause in rate moves and bought chips into Friday’s close, leaving the S&P under 1% from its August record.
Bond traders refused to follow. Today the 2Y slipped to 4.82% while the 10Y, 20Y and 30Y all set new 52-week highs, which steepened the 2s/10s spread to about 49 basis points. Last week the front end led the move on hike bets. This week the long end did the selling. Capital.com’s Daniela Hathorn pins that on heavy government borrowing and a higher term premium, with the Fed a smaller factor. Buyers bid growth stocks on softer Fed odds while the risk-free rate they price against kept climbing. If the 10Y keeps rising, you will find those valuations harder to defend.
ISM handed bond traders more to worry about. The services PMI printed 54.9 against 55.0 expected, and the prices index jumped to 74, its highest reading since July 2022. Respondents named fuel costs twice as often as any other issue. Services make up most of the economy, so traders will treat the October 14 CPI report as the next tangible test for hike odds, I am expecting rates to hold steady in October.
Bulls gained ground on the Trader Matrix gamma map. SPY started the day sitting on its gamma flip near 770 and closed at 774.83, above the flip and through the 772 call wall. Above the flip, dealers sell rallies and buy dips, which pins the tape. QQQ closed Friday a hair under its 750 flip, and buyers pushed it back above with today’s 0.87% Nasdaq-100 gain. The put walls sit at 760 for SPY and 740 for QQQ.
SECTOR ROTATION
Over the past five sessions, money went into SMH (+4.18 vs SPY), IGV (+2.50), XLK (+2.02) and XLE (+1.48). It came out of XLV (-2.43), XLF (-2.24), XLC (-2.12) and XLB (-1.67). SPY lost 0.22% on the week, so buyers hid a strong chip and software bid inside a flat index. ARKK lagged at -0.82, and you can see from that gap that buyers chased quality mega-cap tech and skipped speculative growth.
Options traders leaned bullish but split. Trader Matrix flow alerts showed bullish surges in Utilities (XLU, 3.2x its 30-day average), Energy (XLE, 2.9x), Photonics (EUV, 2.8x) and Financials (XLF, $175M in total flow). Traders put $800M into SMH options at 1.9x and split down the middle, $247M bullish against $233M bearish. They put the most money into XLY, $629M, with a bullish skew. Market-wide, traders bought $1.76B in calls against $1.85B in puts before the open.
Traders reversed course on defense. Last week they bought bearish SHLD exposure, and today SHLD flow ran 1.8x average and 77% bullish. Our main stocks backed that up with a multitude of contract news to help their rallies. Traders did the same in utilities: XLU was the worst five-day sector last week, and today they hit it with the biggest surge on the board. If utilities run I see that helping a lot of the hardware and end system companies we track in this publication.
MACRO AND GEOPOLITICS
Iran kept Hormuz shut. Its parliament speaker said over the weekend that the strait will not reopen until Washington meets Iran’s war terms, and more tankers took hits in Gulf waters. The Houthis claimed a missile and drone strike on an Aramco site in Riyadh on October 3, and the Saudi-led coalition called the claims misleading. Tonight, Riyadh’s King Khalid International Airport halted incoming flights twice. Iran’s foreign minister Abbas Araghchi said there is no military solution to the conflict with the U.S. while warning Tehran stands ready to defend itself.
In Yemen, government forces launched an offensive on the Houthi-held capital of Sanaa and said they retook ground near the Bab al-Mandeb Strait. OPEC+ agreed in principle to hold November output targets. At a London forum, Aramco CEO Amin Nasser warned that global oil stockpiles have run thin and said refilling them could take two years after Hormuz reopens. Traders still sold Brent down 1.9% to $100.32 and held WTI near $90.50, pricing in no new supply loss from the weekend.
In Europe, French lawmakers stalled on a budget, and traders sold the euro to a 17-month low and dumped French bonds, pushing the French-German spread toward 2011 debt-crisis levels. In Brazil, Flavio Bolsonaro beat the polls in the first round of the presidential election, and currency traders bid the real up more than 4%. Russia reported a pneumonic plague death at a lab in Irkutsk, and local officials put close to 190 people under observation. Watch healthcare ETFs for a sudden surge if the problem escelates. Covid made many millionaires who played the mask and pharma angles.
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