Overseas Market Report

US stocks dropped for a second straight day on Friday, weighed down by another rise in Treasury yields in the wake of a solid jobs report that capped off a week of robust data. The losses were led by heavyweight stocks in the technology and communication services sectors including all members of the so-called FAANG group – Facebook, Amazon, Apple Netflix and Alphabet. Online retailer Amazon, part of the consumer discretionary sector, lost one per cent.

Nonfarm payrolls increased less than expected in September, likely due to the effect of Hurricane Florence, though data for July and August was revised higher, and the unemployment rate fell to 3.7 per cent, a Labor Department report showed. “There’s no question the job market in the United States is possibly at its best in a generation – there’s no question or debate about that,” said Russell Price, senior economist at Ameriprise Financial Services Inc in Troy, Michigan. “The jobs report has become an inflation report.”

The report pushed longer-dated US Treasury yields higher, with the 10-year note touching 3.248 per cent. That piled more pressure on US stocks, which are trading near record-high levels, raising concerns about valuations in the pricier names with the corporate earnings reporting season on tap. After the data, interest rate futures traders were still largely expecting a Fed rate hike in December while the bond market’s gauges on investors’ inflation outlook rose.

“Equities will have no choice because if they don’t remain competitive with the risk-free rate of return people will stop buying them anyway and they will start going into bonds,” said Walter Zimmerman, chief technical analyst at ICAP in Jersey City, New Jersey. “How does the stock market adjust for that? By lowering the price and therefore increasing the rate of return.”

Morning Market Note - Monday 8th October