Markets shrug off gov't shutdown, ADP shocks the narrative

And there it is – Weeble’s do in fact wobble, but they don’t fall down. The Gov’t shutdown was a non-event; the disastrous ADP report was the event…and stocks go higher…

Stocks wobbled out of the gate yesterday – Dow futures down triple-digits in the pre-mkt, the indexes all opened in the red – only to regain their footing as the day wore on. By the closing bell, the Dow added 43 points, the S&P gained 22, the Nasdaq tacked on 95, the Russell advanced 6, while the Transports slipped 62. Equal-Weight S&P rose 20 points and the Mag-7 ripped higher by another 200 points.

The spark? The September ADP report.

Markets were braced for a soft but still positive print – about +50k new jobs – but instead ADP stunned everyone with a headline loss of 32k jobs. That’s an 82k swing versus expectations.

To make matters worse, the August report – originally thought to be a gain of 54k – was revised down by 57k, turning it into a loss of 3k.

That one-two punch poured fuel on the fire about a weakening labor market, which in turn fanned speculation that the Fed will have to remain on a more aggressive easing path.

Bonds loved it. Yields fell across the curve as investors quickly repriced the rate-cut outlook. The 10-year yield, which had been pressing higher early in the morning, slid by the afternoon and closed at 4.09%. The 30-year yield eased back to 4.70% after peaking above 4.75%. Fed-fund futures are now pricing in a higher probability of a larger cut at the next meeting. Is the market now expecting a 50-bps cut? Because that would explain the surge.

Next up was S&P Manufacturing PMI – coming in strong at 52, while the ISM Manufacturing PMI came in weaker at 49.1. ISM Priced Paid data point fell from 63.7 to 61.9 – a number that was lower than the expectation of 62.7. Now while that number is still north of 50, suggesting that prices are still rising, the move was celebrated because it continues to trend lower.

Sector Performance:

Healthcare – the year’s laggard – was the star of the show.

The XLV surged 3.1% after Trump announced a ‘Most Favored Nation’ pricing agreement with PFE, effectively aligning Medicaid drug prices in the U.S. with the lowest paid by other developed nations.

This is a tremendous deal for the country – it will SAVE state Medicaid programs millions of dollars – and is expected to ‘set the standard’ for other drug companies to follow. Investors, traders and algo’s loved it, bidding up the sector across the board.

Tech (XLK) gained 1%, news that OpenAI completed a $6.6 billion sale at a $500 billion valuation cemented the idea that it is now the world’s most valuable privately held company – leaving Lonnie’s SpaceX in the dust at only a $456 billion valuation. The sale allowed current and former employees to sell stock that they have held for more than 2 yrs. This news only adds a new level of excitement to the whole AI narrative.

Utilities (XLU) also rose 1%, as falling Treasury yields made their steady dividend streams more attractive. When Treasury yields fall, the relative appeal of dividend-paying sectors like utilities (XLU) rises. If a 10-year Treasury is at 4.5% and a utility stock yields ~3%, investors might stick with Treasuries. If the 10-year falls to 4% or below, that same 3% utility yield starts to look more attractive — especially with potential price appreciation. Utilities are indeed viewed as stable dividend payers (generally 3–4%), which is why income-seeking investors often rotate into them when bond yields retreat.

They have outperformed this year (+16.4%) because of their role as steady suppliers of power to data-center-hungry AI buildouts. Investors are betting that the AI revolution will drive long-term electricity demand, boosting utility revenues and earnings.

Consumer Discretionary added 0.6%, Industrials (XLI) slipped 0.3%, and Financials (XLF) continued to lag, weighed down by the prospect of lower net-interest margins as the rate-cut story strengthens. Staples (XLP) slipped 0.15%, while Communications (XLC) lost 1.4% on weakness in the big names – META -2.3%, NFLX -2.3%, WBD -1%, DIS -1.4% & CMCSA – 1.5% – which together make up roughly 35% of the ETF.

Finally, Energy names were mixed, following the slide in crude. Kuwait’s oil minister – Tareq Al-Roumi emphasizing that it is critically important for members to ‘play by the rules’ in terms of production limits to maintain stability in the oil market…. a direct shot at Iran- because they never ‘play by the rules’. Oil fell 1% yesterday.

Further down the chain – we found strength in Homebuilders – XHB + 0.7%, Disruptive Tech – ARKK + 0.7%, Emerging Markets – EEM + 0.8%, Metals & Miners XME + 2.3%, (think the upgrade to the Critical Minerals List that added 6 new commodities seen as vital to national security and economic stability).

Cyber – CIBR + 0.7%, Semi’s – SOXX + 1.9%, Robotics – BOTZ + 0.8%, Steel Producers – SLX+2.3%, Aerospace & Defense + 0.6%, Nuclear – NLR +1.7% and Quantum names continue to surge – QUBT +3%, IONQ + 2.5%, the QTUM ETF + 1.7%.

Oil fell by 1% yesterday – and is now teasing those lows of August that we discussed. This morning it is down another 0.4% at $61.55 – if we fail to hold here then we could see oil test lower into the $55/$60 range. Recall, many analysts are calling for a ‘supply glut’ in 2026 sending oil to $55.

Gold do we even need to go there? It continues to surge – up $12 this morning trading at $3878 – just $22 away from yet another new century mark. Besides the ongoing excitement that has taken gold up 48% ytd – that Critical Minerals Upgrade – just added more excitement across the commodity sectors. Silver , copper, and uranium are all higher as well.

Eco data today includes the Challenger Job Cuts and Durable goods Orders…the other usual Thursday reports are delayed due to the gov’t shutdown.

US futures are churning…. Dow futures down 36, S&P’s up 12, Nasdaq up 100 and the Russell is ahead by 9 pts.

European markets are up as well…. Germany in the lead up 1.3% while the UK carries up the rear at +0.7%. There is no eco data to speak of….and tech like here continues to lead the way higher across the zone.

The S&P closed at 6,711 up 22 points after re-testing as low as 6656. With little to no new eco data being reported – the focus will be on DC and what they are doing vs. what they are NOT doing. In any event – Enjoy the ride!

Here’s your new countdown:

12 days until earnings season kicks off.

27 days until the next Fed decision.

53 days until Black Friday — though you can expect “pre-Black Friday” sales to start popping up any day now.

And only 84 days until Christmas.