Stocks Slide on Bleak US Job News and Weakness in Chipmakers

US stock indexes, including the S&P 500 and Nasdaq 100, fell to two-week lows today, primarily driven by strong evidence of a cooling labor market, with October recording the most job cuts in 22 years, and broad weakness in semiconductor stocks. However, a decline in 10-year T-note yields, fueled by increased market expectations for continued Fed rate cuts, and robust Q3 corporate earnings, where 81% of S&P 500 companies beat expectations, helped mitigate further losses. Despite the positive earnings surprise rate, overall Q3 profit growth is projected to be the smallest in two years, while hawkish comments from Chicago Fed President Goolsbee added some uncertainty to the rate outlook.

Analysis

US stock indexes, including the S&P 500 and Nasdaq 100, retreated to 2-week lows today, driven primarily by strong evidence of a cooling US labor market and broad weakness in semiconductor stocks. The Challenger, Gray & Christmas report showed US companies announced the most job cuts in any October in over 20 years, with year-to-date cuts exceeding 1 million. However, a decline in the 10-year T-note yield by 7 basis points to 4.09% limited downside, fueled by increased market expectations for continued Federal Reserve rate cuts.

The significant increase in October job cuts, up 175.3% year-over-year, has bolstered market sentiment for Fed easing, with a 69% probability now priced in for a 25 basis point rate cut at the December FOMC meeting. This optimism is somewhat tempered by Chicago Fed President Goolsbee's hawkish remarks, expressing unease about rate cuts due to a lack of inflation data during the ongoing, historically long government shutdown. The shutdown itself is a persistent drag on market sentiment and the broader US economy, potentially leading to further job losses and reduced consumer spending.

Despite the broader market decline, Q3 corporate earnings season continues to show resilience, with 81% of S&P 500 companies beating expectations, marking the best quarter since 2021. However, this strength is juxtaposed against a projected slowdown in overall Q3 profit growth to +7.2% year-over-year, the smallest increase in two years, and slowing sales growth. Sectoral performance was highly divergent, with significant gains in companies like Datadog (+21%) and Coherent (+15%) on strong results, while semiconductor stocks and several companies issuing weak guidance (e.g., Elf Beauty -32%, Duolingo -29%) experienced sharp declines.

Key Decisions for Investors

• Investors should prioritize companies demonstrating robust Q3 earnings and strong forward guidance, as evidenced by individual stock performance, while exercising caution with sectors like semiconductors and companies issuing weak outlooks.
• Closely monitor upcoming labor market reports and inflation data, as market expectations for Fed rate cuts are high but subject to hawkish counterpoints and the economic impact of the prolonged government shutdown.
• Evaluate portfolio exposure to macro risks, including the potential for fiscal and economic disruption from the ongoing government shutdown and the uncertain outcome of the Supreme Court's ruling on tariffs, which could impact over $80 billion in refunds and future trade policy.