Stock futures point to modest losses after payroll report

Dow tumbles on rate worries after this week’s record highs
October 5, 2018
Stocks open little changed as rates pop on jobs report
October 5, 2018

Stock futures point to modest losses after payroll report

S&P 500 coming off biggest drop since June

U.S. stock-index futures pointed to a slightly lower open on Friday, after the September payrolls report came in below expectations but the unemployment rate fell to its lowest since 1969 and underlined the concerns that investors have about inflation.

Where are the major benchmarks trading?

Futures for the Dow Jones Industrial Average YMU9, -0.93%  rose 45 points higher to 26,697, a gain of 0.2%. S&P-500 futures ESU9, -0.83%  were down by 2.5 points to 2,904.50, a drop of 0.1%. Nasdaq-100 futures NQU9, +0.17%  shed 22.25 points, or 0.3%, to 7,589.

U.S. equity markets are coming off one of the worst days in months. The DowDJIA, -0.75%  suffered its biggest one-day percentage drop since August on Thursday, while both the S&P SPX, -0.82%  and the Nasdaq COMP, -1.81% logged the biggest daily drop since late June.

For the week, the S&P is looking at a drop of 0.4%, its second straight weekly decline. The Nasdaq is down 2.1%. The Dow, however, remains in positive territory, and is up 0.6% on the week. The blue-chip average has risen in five of the past six sessions, and it ended at a record as recently as Wednesday.

Thursday’s losses came as the yield on government bonds extended a rapid climb to the highest level since 2011, forcing a broad reassessment of assets that are seen as risky, like stocks.

What’s driving the market?

The September jobs report showed 134,000 jobs added in the month, below the 168,000 that had been expected, although recent storms were seen as having a possible influence on job creation.

The report showed the unemployment rate dropping to 3.7%. In addition, average hourly wage paid to American workers rose 0.3% an hour, while the 12-month rate of hourly wage gains came in at 2.8%.

The wage data was particularly in focus for what it says about inflation in the U.S. economy.

Yields continued to rise on Friday, with the U.S. 10-year Treasury note up 2.4 basis points to 3.22%. A month ago, the yield was around 2.88%.

The rise in bond yields reflects growing perception that the economy continues to be strong, which pushed investors to dump bonds. That pushed yields higher, as bond yields and prices move inversely to each other.

See also: JPMorgan strategist urges investors to stay bullish even as stocks log worst day in months

While a strong economy creates a good environment for stocks, a higher yield can also damp enthusiasm for equities, as it offers higher returns for income-seeking investors, without the risk or volatility typically associated with equities. Higher yields could also mean that the Federal Reserve may have to be more aggressive in raising interest rates, which would be seen as another headwind for stock prices.

What are market analysts saying?

“Wages are definitely trending higher, which is an alarming point for the market. That will likely keep the bond market under pressure, which means that yields will move higher and the dollar will continue to strength. All of that will weigh on stocks,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

“I’m cautiously optimistic about equities going forward, but we’re looking at a lot of volatility in the short term and I believe we’re entering a defensive market,” he said.

What stocks are in focus?

Costco Wholesale CorpCOST, -3.12%  late Thursday said it was assessing its internal control over its financial reporting.

Snap IncSNAP, +2.82%  could rise a day after a memo from the chief executive set a goal of profitability for the full year of 2019. The stock has struggled throughout 2018, falling more than 46% thus far this year.

Precision Drilling Corp. PDS, -1.71%  said it would merge with Trinidad Drilling in deal that values Trinidad at about $1.028 billion.

General Electric CoGE, +0.87%  late Thursday said its board approved an “employment inducement award” for Chief Executive Officer H. Lawrence Culp that is contingent upon how much the stock appreciates under Culp’s leadership.

Canadian-based cannabis company Tilray IncTLRY, +5.52% announced the pricing of $450 million in convertible debt late Thursday, valuing the company’s stock at a 15% premium. The stock has been a trading favorite of late, and while the shares have been extremely volatile, it is up 62% over the past month.

Where are the other markets trading?

Shares in Asia were mostly lower, with weakness in technology stocks dragging down the major indexes. Major European indexes were also lower, extending their recent weakness.

Crude-oil CLK9, +0.19%  prices rose 0.3% while gold GCM9, +0.56%  was also up 0.3%. The U.S. dollar index DXY, -0.15%  gained 0.1%.