NFP Misses, Stocks Cheer, Bonds Push Back — And Now France Adds to the Drama
Things You Need to Know
- NFP misses expectations…. Unemployment ticks up.
- Investors are now betting on NO rate hike at the end of the month.
- Bonds rallied then sold off again – yields ticking higher this morning.
- Oil remains steady at $90.
- Europe and France take center stage.
Good morning and welcome to Monday.
Stocks advanced on Friday as investors, traders, and algos digested the latest eco data that reminded us that bad news can be good news for stocks.
September NFP report missed expectations by a wide margin (29k new jobs vs. the expected 90k), downward revisions to the prior two months pointed to weaker job growth than what we believed, wage growth cooled and the unemployment rate ticked higher, going from 4.1% to 4.2% – Still a relatively low unemployment rate, but the direction of hiring deserves attention.
Investors – who are aching to find a reason for the FED to stand pat – took one look at this data and decided ‘BINGO, here it is’…… Buyers moved in, stocks went up, tech led the charge (of course it did), and the Nasdaq 100 closed at a record high!
At the end of the day – the Dow gained 0.5%, the S&P added 0.7%, the Nasdaq gained 1.2%, the Russell up 1%, the Transports gained 2.1%, the Equal Weight S&P added 0.3%, while the Mag 7 surged by 1.5%.
So you’d think the bond market also celebrated, but that is where it got a bit more complicated. You see, the report, while much weaker than expected, is not suggesting that the economy is in trouble and investors liked that distinction.
Fed fund futures are now only pricing in a 23% chance of an October rate hike – that’s down from an 81% chance just two weeks ago…so investors decided that the ‘softer than expected’ NFP report will give Kevy and his colleagues a reason to pause.
OK – so what did bonds do? Because this is where it gets a bit more interesting.
Treasury prices rallied in the morning, sending the 10-year yield from about 5.25% to below 5.17% in the minutes after the report hit the tape – exactly the response you’d expect as investors reduced their bets on another FED hike. But that excitement didn’t last. Sellers returned, bond prices fell, and the yield reversed course, finishing around 5.28% – up roughly 3 bps on the day. Yet stocks held their gains. So, how does that make sense?
Well, let’s discuss. The jobs report may have reduced the likelihood of an October hike, but it did NOT resolve concerns about persistent inflation, massive gov’t borrowing, or the enormous financing needs tied to the AI buildout. So, while the Fed can control short-term policy rates, the market (investors) still determines what the longer rate will be… and apparently, the market is still betting on higher long-term rates. In the end – a Fed pause does not guarantee lower mortgage rates or cheaper long-term financing.
And while no one wants to hear that – stocks can advance with higher yields WHEN earnings support them, but those yields will make valuations harder to defend and leave less room for disappointment – that is what we’ll find out next week when earnings season officially kicks off.
It won’t be just about beating the quarterly estimate. It will be about what it always is about, but now it will be even MORE important. Investors will want the C-suite to be very specific about what comes next for demand, margins, financing costs, and the outlook for 2027. They will ask if companies can keep growing profits while absorbing higher borrowing costs and elevated energy costs? If they can, then stocks will find support. If not, then we will see a repricing of risk because investors will be less willing to pay today’s multiples for tomorrow’s earnings.
And here is where it gets antsy……3rd qtr. expectations are strong — FactSet puts S&P earnings growth at 29.5%, on revenue growth of 12.3%. All 11 sectors are expected to grow profits, and analysts have RAISED their estimates during the quarter. OK, great, but we are already expecting that, so it raises the bar. The issue is that they not only need to deliver, but also give us reason to believe the growth continues into 2027. At 5.25%, a good quarter accompanied by disappointing guidance is NOT what we want to hear.
Then there was oil. WTI fell $1.76, or 1.9%, to settle at $91.11. Brent slipped just 6 cents to $102.25.
Reports of proposed emergency diesel and crude releases eased supply concerns and supported initial risk appetite. But once again, the closing numbers need some context.
WTI traded as low as $88.06 before recovering more than $3. Brent also clawed back almost all its earlier decline. So, yes, the prospect of additional emergency supplies offered relief, but the turnaround in prices suggests traders remained concerned about supply risks and how that uncertainty remains part of the inflation discussion. This morning – oil is down 36 cts at $90.75.
And remember — crude availability and diesel availability are related, BUT they are different problems. Releasing crude helps only as much as refiners can turn it into the fuels consumers and businesses need. Diesel remains central to trucking, shipping, agriculture, and the cost of moving goods.
Gold had a wild day – at first it surged by $50 ($4,226) right after the NFP report hit the tape but then settled down 0.9% ($4,140) by the end of the day as the rebound in Treasury yields helped pressure on gold, and while that was all very exciting, the fact is – it remains in the $4000/$4300 trading range.
Eco data today includes the Sept final S&P Services PMI of 58.7 and the ISM Services PMI of 55 – both in the expansion zone. ISM Prices Paid is expected to be 73.3, up from 72.6.
Overnight, Europe moved into the spotlight – France is now at the center of the concern. Headlines suggest ‘instability’. Instability stems from a divided government, difficult budget negotiations, and growing doubts about whether the French gov’t can get the country’s finances under control ahead of the 2027 presidential election.
France’s public debt is out of control at roughly 119% of GDP. The government’s proposed budget includes about €54 billion of fiscal tightening – but spending cuts and tax increases are politically painful, and weak economic growth makes those targets harder to achieve. Where else have we seen that?
Bond buyers are losing confidence in French debt, and you know what happens next… they demand more interest (higher yields) to lend them money – which makes an already difficult budget problem even harder. Sound familiar?
The concern now is that selling could spread to other European countries, bringing back uncomfortable memories of the 2010–2012 eurozone debt crisis when Greece was the main player.
Spain is only adding to the uncertainty after Prime Minister Pedro Sánchez called an early election on November 29th after parliament rejected his emergency housing measures – with a crucial parliamentary ally voting against him. He is betting voters will give HIM a stronger mandate to govern, but that is far from certain and it adds another layer of uncertainty just as investors are questioning Europe’s ability to manage its fiscal challenges.
In the early-morning trading, it is a mixed picture…. France is down 1%, the Euro Stoxx is down 0.25%, while the UK, Spain and Italy are in positive territory.
Meanwhile, the VIX, which dropped 6.6%, to 15.31 on Friday, is up 6% at 16.25 as the new week begins and all this says is that the risks have not disappeared. And those risks can be here or abroad….Capisce?
US futures are lower at 6 am—Dow futures down 67, S&P’s down 14, Nasdaq down 85, while the Russell is down 4. Bond yields are inching higher…
The S&P closed on Friday at 7,722 – up 56 pts. Support is down at 7,657 with resistance at 7,800…The RSI remains neutral – neither overbought nor oversold. France is now becoming the problem child and while you say it doesn’t matter for us, you’d be wrong… Financial markets are connected. A sustained selloff in French debt could pressure European banks, tighten lending, and spill into global stocks. A weaker euro can also strengthen the dollar, reducing the dollar value of European earnings for U.S. multinationals. That doesn’t mean France’s troubles automatically become an American crisis — but if the selling spreads, that narrative will change….and we will feel it at some point…. Not yet, but let’s keep our eyes on it.
Take good care,
Kp
Kenny Polcari is a partner and Chief Market Strategist at Slatestone Wealth – A boutique wealth advisory firm with $2 billion dollars of investor assets under management. In this role, his responsibilities range from market and economic analysis to investor education interpreting the ever changing economic and market landscape on behalf of Slatestone and how those impacts may affect future investment and planning strategies on behalf of their clients. With more than 40 years of industry experience as a member of the NYSE serving institutional investors both at home and abroad – he is a seasoned and well-known voice on the markets. You may recognize him from his many years serving as a market analyst on Fox Business and CNBC or his ‘Trader Talk’ Podcast on the Yahoo Finance Channel. For more, please visit his Substack HERE.
Disclaimer. Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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