Wall Street slid on subdued earnings and upbeat ADP, GDP data

·         But Wall Street was also briefly boosted Wednesday after the White House indicated terrible US NFP job data due for October amid Cyclone Helena's disruption

·         Fed may pause in Nov’24 amid stalled core inflation, stable employment situation, and robust economic activity

·         All focus now on the US election outcome, core PCE inflation and NFP/BLS job data

On Tuesday, Wall Street closed mixed amid mixed report cards (earnings & guidance) and JOLTS job openings data. Techs helped NQ-100 to soar around +1.0%, almost at a record high on hopes & hypes of a blockbuster quarter of earnings. But DJ-30 edged down 0.3% on a subdued report card by some of the index heavyweights.

On early Wednesday, NQ-100's future surged as Alphabet jumped on earnings beat amid quarterly revenue growth in its cloud division. Snap and Reddit also saw substantial gains amid robust quarterly performances. However, AMD slumped on subdued guidance for Q4CY24. The market is now focusing on upcoming corporate earnings from Meta and Microsoft Wednesday, followed by reports from Apple and Amazon Thursday, along with a deluge of US economic data (GDP, NFP/JOB, and core PCE inflation) followed by US election outcome 5th Nov and Fed decision 7th Nov’24.

Gold scaled a new life time high around 2790 early Wednesday amid renewed geopolitical tensions and record retail buying interest in the Indian Diwali Festival (Dhanteras). There was an increasing war of words between Israel and Iran, threatening each other amid elevated domestic political compulsions, while Russian President Putin approved another yearly ritual of nuke exercise.

On Wednesday, some focus of the market was also on ADP private payroll job data ahead of official NFP job data on Friday. The ADP flash data shows Private nonfarm payrolls in the U.S. (only private establishment/business employees using ADP payroll processing software) added +233K payroll jobs in Oct’24 from +159K sequentially (m/m) and +111K yearly (y/y), and above the market expectations of +115K.

As per ADP:  “US private ADP job creation (using ADP payroll software) hit its highest level since July 2023 as the economy worked through hurricane recovery. Manufacturing was the only sector to shed jobs. Even amid hurricane recovery, job growth was strong in October. As we round out the year, hiring in the U.S. is proving to be robust and broadly resilient.”

The annual (y/y) wage growth was at +4.6% in Oct’24 vs +4.7% sequentially for job-stayers and 6.2% for job-changers. The median annual pay for job stayers was $56K for job stayers. As per ADP, in Oct’24, the US service-producing sector added +211K jobs, led by education/health services (+53K); trade/transportation/utilities (+51K); leisure/hospitality (+37K); professional/business services (+31K); and information (+7K). Meanwhile, the goods-producing sector added +22K jobs, of which +37K in construction and +4K in natural resources/mining while manufacturing shed -19K jobs. The ADP flash data shows the number of US Private employees (using ADP payroll software) reached around 132838K in Oct’24 and 132605K against BLS/NFP Private Employees around 135684K till Sep’’24 (provisional).

Although the divergence between ADP and BLS for job addition data is now decreasing, overall, ADP and BLS data trends, along with JOLTS job details, we might have seen around +175K private NFP job additions in Oct’24, if there were no Cyclone Helena disruption effect mid-Oct’24; the present market estimate us +70K (disruption due to Cyclone Helene) and ADP flash figure +233K.

The 2024 YTM average of private job additions as per the ADP survey is now around +160K against the 2023 average of +209K, while the 6M rolling average is now around +146K against +141K as per BLS survey data (till Sep’24) as the divergence between NFP/BLS and ADP payroll data is gradually decreasing due to increasing adoption of ADP payroll processing software by US Private Establishments.

Conclusions:

After the White House warning Wednesday, the market is now estimating around +101K NFP (PVT+GOV) and +70K (PVT) job additions for Oct’24 amid the lingering disruptive effect of Cyclone Helene, the US election and certain other transient factors. But as per JOLTS and ADP data trend, the headline Nov’24 NFP job addition may be quite upbeat.

As US core inflation may have almost stalled in Q3, while the unemployment rate remains stable at around 4.0% along with resilient Real GDP and PDPF growths around 2.8-3.0% on an average, the Fed may pause in Nov’24. Also, the Fed may cut -25 bps in Dec’24 rather than another jumbo -50 bps. The market is now expecting a -25 bps rate cut each in November and December as the Fed may have missed the opportunity of two rate cuts in H1CY24. Thus to make up Fed may also cut -25 bps in Nov’24 and another -25 bps in Dec’24 for a cumulative -100 bps in CY24. (front loading to stay ahead of the curve).

Bottom line:

The projected Fed rate cut of -50 bps by Dec’24 not be assured as US core disinflation may have stalled in Q3CY24, while average unemployment remains around 4.0%; Fed should cut -25 bps in Dec’24 after a pause in Nov’24, but as Fed didn’t try to talk down against almost 96% implied market probability of a-25 bps rate cut in Nov’24, Fed may also cut in Nov’24 by -25 bps to stay ahead of the curve. But the Fed may also want to see Nov’24 job data after a transient disruption due to Hurricane/Cyclone Helena in mid-Oct’24.

Market Impact:

On Tuesday, Wall Street closed lower on upbeat ADP Private NFP payroll job and Real GDP data, indicating robust economic activities and a stable labor market. But Wall Street Futures also got some boost briefly after the White House issued a warning for US NFP/BLS job data to be released Friday to minimize market impact (after an upbeat ADP job data). The data collection methodology (survey period) is different between ADP and BLS. And White House (President’s office) has early access to important US economic data like employment situation (NFP/BLS) and inflation. Overall, the Fed may not cut in Nov’24 but may cut -25 bps in Dec’24. All focus now on US core PCE inflation data Thursday and NFP/BLS job data Friday.

On Thursday, Wall Street was boosted by communication services, banks & financials, real estate, materials, energy, and consumer discretionary to some extent, while dragged by techs, consumer staples, utilities, healthcare and industrials to some extent. Wall Street is also under stress on mixed/subdued report cards.

On Wednesday, the S&P 500 and Nasdaq 100 lost -0.3% and -0.6%, respectively, while the Dow Jones slips -91 points. Chipmakers including Nvidia were under pressure as AMD slid on tepid guidance, while Super Micro Computer tumbled after its auditor’s sudden resignation. But Alphabet boosted sentiment with strong cloud growth, fueling optimism ahead of results from Meta, Microsoft, Apple, and Amazon. On early Thursday (European session) mega-cap techs tumbled on subdued report card earnings reports (including guidance warning) from Meta and Microsoft.

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (42500) now has to sustain over 42800 for any further rally to 42900/43050-43250/43500* and 43700/44000-44500/44800 in the coming days; otherwise sustaining below 42750/42700-42600/650, DJ-30 may again fall to 42400/42300-42100/42000 and 41800/41500-41200/41000* and further 40700/40300-40100/40000* and 39700/394350-39000*/38500 in the coming days.

Similarly, NQ-100 Future (20800) has to sustain over 21100 for a further rally to 21300/21700-21900/22050 and even 23000 levels in the coming days; otherwise, sustaining below 21050/21000-20950/20850, NQ-100 may again fall to 20700/20500-20300/20100 and 19900/19700-19600/19350 to 19100/18900 in the coming days.

Technically, SPX-500 (5880), now has to sustain over 5975 for any further rally to 6000/6050-6100/6150 in the coming days; otherwise, sustaining below 5900-5950/5900-5850/5800, may again fall to 5725-5675/5625-5600/5575*-5550/5500-5475/5450 and 5425/5390-5370/5300* and 5250/5100* and further 5050/4950*-4850/4750 in the coming days.

Also, technically Gold (XAU/USD: 2785) has to sustain over 2810 for a further rally to 2825/2850-2875/2900 and 2925/2950-2975/3000 in the coming days; otherwise sustaining below 2805/2800-2795/2790, may again fall to 2775/2750-2725/2700* and 2675/2650-2625/2600 and 2590/2575-2540*/2500 and further to 2470*/2440-2425/2400-2375/2330-2275 in the coming days (depending upon Fed rate cuts and Gaza/Ukraine war trajectory).