Inside Markets — Small Relief Rally

A blow-out non-farm payroll number of +336,000 is combined with smaller wage gains to breathe temporary life into the soft-landing narrative. Non-farm payrolls from the past two months were revised higher, while smaller job gains in the household survey held the Unemployment Rate steady at 3.8%. In aggregate, the report points to ongoing strength in labor markets and keeps upward pressure on bond yields as further rate hikes remain in play. Other data from this morning fits the sticky inflation theme with a MoM increase in the September Manheim used car index and stronger Canadian jobs number in the background. Next Thursday brings the September CPI report with consensus looking for a stronger headline print and softer core figure.

M&A headlines in focus with XOM reportedly near an agreement to acquire PXD in a deal worth ~$60B. LEVI is the only notable earnings report this morning with shares trading off after the company lowered FY guidance.

The S&P 500 (SPX) is staging a small relief rally from oversold levels after holding key technical support near 4200. Cyclical proxies like the Russell 2000 (RTY), Philadelphia Semiconductor Index (SOX) and EuroStoxx 50 (SX5E) see smaller gains after bearish distribution patterns led to breakdowns over the last two weeks. The SPX has also formed a months-long bearish distribution pattern and likely to break below 4200 in the weeks ahead. We expect a brief rally only with further crowding in mega-cap Tech. The NYSE FANG+ Index (NYFANG) is the only major sub-group still in the process of forming a bearish distribution pattern. Crowding in the largest cap stocks is a defensive dynamic that often happens at the end of a cycle. An eventual break in the NYFANG below ~7175 (~5.5% below current levels) will further impair equity sentiment and likely cause the SPX to overshoot our near-term price objective of ~4100.