Stocks Rally, Bonds Push Back on Weak Jobs Data

Grant Calloway

Welcome to the Bull Sheet. Friday I told you not to marry the first move. Well, the weak jobs report gave stocks their first move, and the bond market just showed up at the wedding with an objection. It's Monday, October fifth, and the question is whether stocks can keep celebrating while the cost of money won't come down.

Grant Calloway

Here's the setup. Friday's September payroll number was just twenty nine thousand jobs, well below expectations. The prior two months were revised down by a combined sixty thousand, and unemployment ticked up to four point two percent. That cut bets on a Fed rate hike in October, and the Nasdaq 100 closed Friday at fresh highs. The S&P 500 sits less than one percent from its record.

Grant Calloway

That's the sprint I talked about on Friday, the discount rate trade. Lower hike odds, higher multiples. But the ten year Treasury yield was supposed to follow along, and it didn't. It's holding between five point two five and five point two eight percent, near multi decade highs. The stock market got the rate relief. The bond market declined to give it.

Grant Calloway

Daniela Hathorn, a senior market analyst at Capital.com, put it well. She says the long end sell off is being driven by more than Fed policy. Elevated real yields, heavy borrowing, and competition for capital are demanding a higher term premium. So growth stocks rally on softer Fed expectations, while the risk free rate those valuations get judged against stays exceptionally high. That's an unusual divergence, and it doesn't resolve itself politely.

Grant Calloway

James DePorre at TheStreet Pro describes it as two markets. In the first, you've got the mega cap AI names that, in his words, aren't bothered by higher rates because they expect so much growth. In the second, most everything else, with anemic growth, valuations squeezed by rates, and what he calls stagflation, slow growth plus rising costs. That's the tape in a sentence.

Grant Calloway

Now the tape itself. Dow and S&P futures edged fractionally lower early, and the Nasdaq 100 was down about a tenth of a percent. In early cash trading, it was a split decision. The S&P was up about eighteen basis points, the Nasdaq up about four tenths of a percent, the Dow down a fifth of a percent, and the Russell 2000 up nearly one percent. Small caps leading on a day yields are rising. File that under things I'd like explained.

Grant Calloway

Overseas, the French budget impasse has turned into a bond problem. The euro hit a seventeen month low, and the gap between French and German yields widened to around one hundred forty to one hundred fifty basis points, the widest since the 2011 eurozone debt crisis. Commerzbank strategist Hauke Siemssen called the dynamics, quote, somewhat reminiscent of a sovereign debt crisis. The CAC fell six tenths of a percent, while London's FTSE rose six tenths. In Asia, Foxconn reported third quarter sales of about 3.03 trillion Taiwan dollars, up forty seven percent and ahead of estimates, another data point that AI spending is still climbing.

Grant Calloway

Energy is the other pressure point. Brent is around one hundred two ninety a barrel, WTI around ninety sixty eight. Saudi Aramco's CEO Amin Nasser told a London energy forum that global stockpiles are, quote, scarily thin, and that even after the Strait of Hormuz reopens, it could take up to two years for consuming countries to rebuild them. Gold is up about two thirds of a percent near forty one eighty nine an ounce. Silver jumped nearly three percent to just above sixty two.

Grant Calloway

On to the movers, and not a software story in the lot. Well, one. PTC is up about thirty six percent after Schneider Electric agreed to buy it in an all cash deal valued at twenty two point six billion dollars. A French industrial buying American industrial software, and the premium tells you what buyers will pay for the real economy's code.

Grant Calloway

Brazilian names are ripping. XP is up about eighteen percent and Itaú Unibanco about fourteen, after Senator Flavio Bolsonaro outperformed the polls in the first round of Brazil's presidential election. Elections move money fast.

Grant Calloway

C.H. Robinson is down about seven and a half percent after agreeing to sell its Global Forwarding business to RXO, an implied value of five point eight billion dollars. Selling a division for cash and watching your own stock fall. The market has opinions about what's left.

Grant Calloway

Chips are mixed. Intel is down about three percent after Elon Musk confirmed that TSMC could take part in his Terafab venture in Texas, and Intel had been the first company to back it. GlobalFoundries is off about three percent on profit taking. And Cerebras is higher after Sam Altman called it a close partner on X. Cerebras has been under pressure since its disappointing August report, so this is a bounce, not a verdict.

Grant Calloway

A quick word from our sponsor. Jellypod is how this very show gets built, and if you want your own daily briefing that sounds this good, head to jellypod.com. Back to the tape.

Grant Calloway

Time for Bull versus Bear. The debate is simple. Is this resilience, or is it a market running out of runway? I'll argue both, and then tell you where I land.

Grant Calloway

The bull goes first. The Fed hike is off the table for October, or close to it, and that's real relief for multiples. AI demand looks blistering, with Foxconn up forty seven percent. October's reputation is worse than its record. Yahoo Finance data shows a thirty year win rate of sixty three percent and an average return of one point nine percent. Strip out 2008 and it's closer to two point seven. And the S&P is within one percent of a record despite a war and yields at twenty year highs. Sean McLaughlin at All Star Charts says the market has had every reason to sell off and hasn't, and the path of least resistance appears to be higher.

Grant Calloway

Now the bear. Why isn't the ten year falling on a bad jobs number? Because the bond market isn't pricing the Fed, it's pricing supply and risk. Brent above one hundred and inventories that Aramco calls scarily thin are a second energy shock waiting for a trigger. The ISM services prices paid index is expected at seventy three, which is not what cooling inflation looks like. And a weak payroll print is weak demand, not a gift. If costs of capital and energy stay pinned while demand fades, everyone outside the AI group faces a margin squeeze. Nike's job cuts weren't a fluke.

Grant Calloway

Here's where I land. The bull is right about the tape and the bear is right about the arithmetic. Momentum can outrun math for a while. I've seen it twice, and both times the math eventually sent an invoice. I'm not calling a top. I'm saying a market that needs yields to behave while yields misbehave deserves respect, not complacency. And a pullback in a good company is where the opportunity tends to live.

Grant Calloway

On deck today. At nine forty five Eastern, the final S&P Global services PMI, with consensus at fifty eight point seven. At ten Eastern, the ISM services index, expected at fifty five point two against fifty five point four prior. Watch the sub indexes: prices paid, expected at seventy three, new orders at sixty point five, and employment at forty nine, up from forty seven point eight. Earnings are thin today, with VinFast and Park Aerospace. The week picks up with Constellation Brands tomorrow, Levi Strauss and Applied Digital Wednesday, PepsiCo Thursday, and Delta on Friday. The big one is Wednesday at two Eastern, the Fed's September meeting minutes, where traders will look for how hot the rate hike debate really ran.

Grant Calloway

So here's what matters most today. The ten year yield and the services prices paid number. If yields stay near five point two eight while inflation inputs stay hot, the rally has a problem. If not, the bulls get another day. A tape that tight is like a drum, and drums don't tolerate surprises.

Grant Calloway

Tune in tomorrow, same time, before the bell. This podcast is for educational purposes only and is not investment advice.