US stock index futures experienced a downturn due to robust US employment figures and escalating Middle East conflicts. Following the release of employment data, the market expects a Federal Reserve rate cut of only 25 basis points in November, rather than the previously anticipated 50 basis points. Concurrently, the earnings season commences this week.
At the time of reporting, Dow Jones futures were down 0.44%, S&P 500 futures fell 0.48%, and Nasdaq futures decreased by 0.66%. In Europe, Germany's DAX index dropped 0.18%, whereas the UK's FTSE 100 gained 0.42%, France's CAC 40 increased by 0.19%, and the Euro Stoxx 50 inched up 0.04%.
WTI crude oil rose 2.34% to $76.12 per barrel, and Brent crude increased 1.97% to $79.59 per barrel. The US jobs report showed the largest employment increase in six months for September, with a decrease in the unemployment rate, indicating economic resilience. Consequently, market expectations for a significant Fed rate cut have diminished.
In the Middle East, tensions escalated as Israel bombed Hezbollah targets in Lebanon and Gaza, marking the anniversary of a pivotal attack that led to conflict. The Israeli Defense Minister vowed retaliatory measures against adversary Iran.
Currently, forecasts from Bank of America project the Fed will reduce rates by 25 basis points at every meeting until March 2025, then continue with quarterly reductions through year-end 2025. The latest employment data indicates a 95% probability of a rate cut by a quarter-point in November, up from 47% a week earlier, with a mere 5% chance of no rate cut.
Goldman Sachs, encouraged by the strong employment report, lowered its US recession probability from 20% to 15% in the next 12 months. The report highlighted a significant employment surge and reduced concerns over weakening demand.
The earnings season could critically impact the S&P 500, which showed an 8 trillion dollar surge. Analysts revised the expected Q3 earnings growth to 4.7% year-over-year, down from the previous forecast of 7.9%.
Amid positive macroeconomic outlooks, two prominent Wall Street strategists revised their US stock market projections upward. Morgan Stanley's Michael Wilson, previously among the most pessimistic, now shows optimism toward cyclical stocks, spurred by strong employment data and expected Fed rate cuts. Likewise, Goldman Sachs CEO David Kostin raised his earnings growth forecast for S&P 500 companies due to macroeconomic resilience, increasing the index's 12-month target to 6300 points, suggesting a 10% rise.
In pre-market trading, US energy stocks rose, including Chevron (CVX, Financial) and ExxonMobil (XOM) up by 1.2%, Occidental Petroleum (OXY) by 1%, ConocoPhillips (COP) by 1.1%, APA Corporation (APA) by 1.3%, Halliburton (HAL) by 1.2%, and Schlumberger (SLB) by 1.3%. Rocket Lab (RKLB) gained approximately 3% following a Mars sample collection contract with NASA.
