U.S. stock markets shift higher, reflecting rate cut expectations despite worsening employment data

10/02 U.S. stock markets shift higher, reflecting rate cut expectations despite worsening employment data

The U.S. stock market got off to a downward start as the anxiety caused by the government shutdown and the end-of-quarter effects were resolved. However, the Fed’s interest rate cut came in amid the anxiety over employment indicators, and the rebound was successful. In particular, pharmaceutical sectors such as Eli Lilly (+8.18%) led the gains following the previous day. Of course, many stocks, including financial stocks, showed weak differentiation, reflecting concerns about economic instability. In general, the market was characterized by sluggish economic indicators, focusing on interest rate cuts rather than recession issues, and rising in individual stocks due to concentrated supply and demand effects (Dow +0.09%, Nasdaq +0.42%; S&P 500 +0.34%; Russell 2000 +0.24%; Philadelphia Semiconductor Index +2.05%)

*Variables: Shutdown, job insecurity

In the end, the shutdown begins for the U.S. administration. It only affects discretionary spending, which accounts for about 25% of all federal spending, while mandatory spending such as social security and Medicare continues. In the past, 40% of federal employees (about 900,000) were temporarily laid off. All federal employees are not paid during the shutdown, but are paid retroactively when the government resumes. The market sees the military payday (October 15) as a major change perspective. During the past shutdown, the dollar weakened and interest rates on government bonds fell, but the stock market did not have a clear pattern. The most obvious part is the delay in releasing economic data. This is burdensome in that it increases the uncertainty of the Fed’s policy. That is why the importance of private economic data increases

In the meantime, the ADP Private Employment Report was released, and the figure (+54,000 cases) announced last month was downgraded to a decrease of 3,000 cases and announced a decrease of 320,000 cases this month. Despite strong GDP growth in the second quarter, the announced employment shows that companies are cautious about hiring, which increases anxiety in the job market. By size, large companies increased by 330,000, but less than that, by 60,000 cases. By industry, education and healthcare increased by 3.3,000, while all industries except mining and IT declined. However, this slump does not expand into recession concerns, reflecting that ADP is a technical adjustment that occurred in the benchmarking process to match data to government statistics called QCEW. Looking at the wage growth rate, the number of incumbent workers increased from 4.4% to 4.5%, while the number of turnover workers decreased significantly from 7.1% to 6.6%.

Meanwhile, the ISM manufacturing index improved from 48.7 to 49.1 but is still below the 50.0 baseline. Details show that new orders were announced 48.9 (-2.5p), which is not so good for the future, while the production index was announced at 51.0 (+3.2p). The employment index was announced at 45.3, up 1.5p, but still below the 50.0 baseline, manufacturing job insecurity remains. Trade unrest remains as new export orders fell 4.6p to 43.0 due to tariffs and imports fell 1.3p to 44.7. The price index was down 1.8p to 61.9. The results of these economic indicators reflect that the U.S. economy is contracting and the pace is gradually expanding. The stock market is strong, saying that expectations for a rate cut from the Fed are rising

*Featured Stocks: Micron, Eli Lilly, Tesla Up Vs. Financial Stocks, Meta Platforms Slump

Semiconductor: Nvidia Turns Higher On Expectations Of Expansion Of AI Industry After Decline Start
Nvidia (+0.34%) started lower on news that Meta Platforms is discussing the acquisition of Libos, an AI chip start-up, to develop its own chips. However, this is an upward shift, reflecting the expectation that overall investment and demand for AI technology and infrastructure are just as strong. In addition, the widespread perception in the market that it is very difficult for competitors or self-developed chips to replace them in a short period of time due to Nvidia’s long-established GPU performance and CUDA ecosystem, which is a proprietary software platform, is also positive. Intel (+7.14 percent) rose sharply in the market after news broke that it is in discussions to attract AMD (+1.37%) as its foundry customer during the day. Broadcom (+1.05 percent) moved positively in anticipation of the growing demand for semiconductor components that accompany the development of customized AI chips (ASICs) by big tech such as Meta

Semiconductor: Micron Rises Amid Supercycle Expectations and Tariff Avoidance Expectations
Micron (+8.86%) rose when OpenAI mentioned that it would need more than double HBM if the Stargate project expanded at the time of signing contracts with Samsung Electronics and SK Hynix. In addition, it is positive that the prospect of entering the super cycle continues to rise in DRAM and NAND prices. In addition, the news of the tariff suspension on Pfizer also increased the possibility of a tariff suspension on semiconductors. In addition, not only RAM Research (+6.64%) and AMAT (+6.35%) but also TSMC (+3.29%) and ASML (+3.63%) are strong. Amid expectations of expansion of the AI server market, super microcomputer (+9.30%), Western Digital (+8.77%) and Dell (+5.58%) also rose most of the time. Philadelphia Semiconductor Index rose 2.05%

Automobiles: Tesla Rises, Reflecting Expectations of Higher Q3 Vehicle Deliveries
Tesla (+3.31 percent) rose after positive news, including a 2.7 percent year-on-year increase in sales in France. In particular, it is positive for Tesla that Ford (+2.59 percent) saw its sales increase by 8.2 percent in the third quarter, while electric vehicle sales surged by 30 percent. It is also favorable that GM (+0.61%) also saw its sales rise by 8 percent in the third quarter, while electric vehicle sales rose to an all-time high. This suggests a sharp increase in electric vehicle sales ahead of the end of the tax credit, strengthening expectations for Tesla’s sales in the third quarter. Quantumscape (+18.43 percent) was sluggish despite Corning’s cooperation on the previous day, but surged today. Lithium America (+23.29 percent) rose after the news of the U.S. government’s acquisition of a 5 percent stake. Albemarle (+4.18 percent) and Standard Lithium (+13.06 percent) also rose.

Big Tech Shares: Meta Platforms To Open For Sale On Concerns Of Privacy Infringement
Meta Platforms (-2.32%) fell despite news that it is negotiating to acquire Libos, a startup that develops processors for AI data centers.