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U.S. stocks were slightly lower Monday as investors edged away from equities and other assets perceived as risky in favor of traditional havens after a surprise attack by Hamas on Israel over the weekend raised geopolitical alarms.
Stocks bounced Friday after a stronger-than-expected September jobs report, allowing the S&P 500 to rise 0.5% for the week and break a streak of four straight weekly declines. The Dow saw a 0.3% weekly decline, while the Nasdaq Composite rose 1.6%.
The attack by Hamas on Israel raised fears of a broader conflict.
“Such geopolitical tension is traditionally and unsurprisingly negative on sentiment, with investors likely to be unsettled by the prospect of further uncertainty,” said Richard Hunter, head of markets at Interactive Investor.
The price of Brent crude
BRN00,
the global energy benchmark, jumped nearly 4% amid concerns oil supplies from the region may be compromised.
Need to Know: From $150 oil to no impact at all: What the surprise attack on Israel means to markets
“The shocking attacks in Israel have sent the price of oil soaring, as investors assess the potential for the conflict to disrupt supply in the Middle East, if other countries are drawn in,” said Susannah Streeter, analyst at Hargreaves Lansdown.
U.S. stock futures dived as bourses in much of Europe and Asia sold off, while traders moved into the perceived havens of gold
GC00,
the U.S. dollar
DXY
and government bonds, such as the German bund
BX:TMBMKDE-10Y.
See: Gold, U.S. dollar rally as investors flock to havens as Israel-Hamas war escalates
The U.S. Treasury market is closed on Monday for Columbus Day and Indigenous Peoples’ Day, but futures
TY00,
are trading and these indicate falling benchmark yields.
“Geopolitical risk doesn’t tend to linger long in markets but there are many second order impacts that could come through in the weeks, months and years ahead from this weekends’ developments,” said Jim Reid, strategist at Deutsche Bank.
Indeed, traders may find their focus soon switches this week back to monetary and corporate issues. Markets ultimately reacted positively to what on the surface was a strong nonfarm payrolls report published Friday, as traders believed it was not so hot it would move the needle on Fed policy.
With that in mind, the U.S. producer and consumer prices data for September will be published on Wednesday and Thursday, respectively, with further evidence of easing price pressure required to cement no more rate increases by the Federal Reserve this year.
Then Friday sees the start proper of the third-quarter company-earnings season, when big banks such as JPMorgan Chase
JPM,
Citigroup
C,
and Wells Fargo
WFC,
present their results.
Earnings Watch: Q3 earnings are here: S&P 500 heads toward year of profit declines as JPMorgan, and Delta report this week
Forecasts suggest analysts have become less confident about corporate profitability in recent weeks. Aggregate S&P 500 earnings are expected to decline by 0.3% for the year to Q3 2023, which would mark the fourth consecutive quarter of falling earnings, according to John Butters, senior earnings analyst at FactSet.
Read: Good for stocks? Why Tom Lee says the attack on Israel could help equities.
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The ruling Hamas militant group in the Gaza Strip carried out an unprecedented attack on Israel at daybreak Saturday, firing thousands of rockets as dozens of fighters infiltrated the heavily fortified border in several locations by air, land and sea, catching the country off guard on a major holiday.
Several hours after the invasion began, Hamas militants were still fighting gun battles inside several Israeli communities in a surprising show of strength that shook the country.
Israel’s national rescue service said at least 40 people have been killed and hundreds wounded, making it the deadliest attack in Israel in years.
At least 561 wounded people were being treated in Israeli hospitals, including at least 77 who were in critical condition, according to an Associated Press count based on public statements and calls to hospitals.
There was no official comment on casualties in Gaza, but AP reporters witnessed the funerals of 15 people who were killed and saw another eight bodies arrive at a local hospital. It was not immediately clear if they were fighters or civilians.
Social media was replete with videos of Hamas fighters parading what appeared to be stolen Israeli military vehicles through the streets and at least one dead Israeli soldier within Gaza being dragged and trampled by an angry crowd of Palestinians shouting “God is Greatest.”
Videos released by Hamas appeared to show at least three Israelis captured alive. The military declined to give details about casualties or kidnappings as it continued to battle the infiltrators.
“We are at war,” Israeli Prime Minister Benjamin Netanyahu said in a televised address, declaring a mass army mobilization. “Not an ‘operation,’ not a ’round,’ but at war.”
“The enemy will pay an unprecedented price,” he added, promising that Israel would “return fire of a magnitude that the enemy has not known.”
At a meeting of top security officials later on Saturday, Netanyahu said the first priority was to “cleanse the area” of enemy infiltrators, then to “exact a huge price from the enemy,” and to fortify other areas so that no other militant groups join the war.
The serious invasion on Simchat Torah, a normally joyous day when Jews complete the annual cycle of reading the Torah scroll, revived painful memories of the 1973 Mideast war practically 50 years to the day, in which Israel’s enemies launched a surprise attack on Yom Kippur, the holiest day of the Jewish calendar.
Comparisons to one of the most traumatic moments in Israeli history sharpened criticism of Netanyahu and his far-right allies, who had campaigned on more aggressive action against threats from Gaza. Political commentators lambasted the government over its failure to anticipate what appeared to be a Hamas attack unseen in its level of planning and coordination.
The Israeli military struck targets in Gaza in response for some 2,500 rockets that sent air raid sirens wailing constantly as far north as Tel Aviv and Jerusalem, some 80 kilometers (50 miles) away. It said its forces were engaged in gunfights with Hamas militants who had infiltrated Israel in at least seven locations. The fighters had sneaked across the separation fence and even invaded Israel through the air with paragliders, the army said.
Israeli TV broadcast footage of explosions tearing through the Gaza-Israel border fence, followed by what appeared to be Palestinian gunmen riding into Israel on motorcycles. Gunmen also reportedly entered on pickup trucks.
It was not immediately clear what prompted Hamas to launch the attacks, which would have likely required months of planning.
But over the past year Israel’s far-right government has ramped up settlement construction in the occupied West Bank, Israeli settler violence has displaced hundreds of Palestinians there, and tensions have flared around a flashpoint Jerusalem holy site.
The shadowy leader of Hamas’ military wing, Mohammed Deif, announced the start of what he called “Operation Al-Aqsa Storm.” The Al-Aqsa mosque compound in Jerusalem is the third holiest site in Islam, and is located on the holiest site for Jews, who refer to it as the Temple Mount.
“Enough is enough,” Deif, who does not appear in public, said in the recorded message, as he called on Palestinians from east Jerusalem to northern Israel to join the fight. “Today the people are regaining their revolution.”
In a televised address, Israeli Defense Minister Yoav Gallant warned that Hamas had made “a grave mistake” and promised that “the state of Israel will win this war.”
Western nations condemned the incursion and reiterated their support for Israel, while others called for restraint on both sides.
“The U.S. unequivocally condemns the unprovoked attacks by Hamas terrorists against Israeli civilians,” said Adrienne Watson, spokeswoman for the U.S. National Security Council. “We stand firmly with the government and people of Israel and extend our condolences for the Israeli lives lost in these attacks.”
In the kibbutz of Nahal Oz, just 4 kilometers (2.5 miles) from the Gaza Strip, terrified residents who were huddled indoors said they could hear constant gunfire echoing off the buildings as firefights continued even hours after the initial attack.
Watson said Jake Sullivan, the national security adviser, has spoken with his Israeli counterpart, Tzachi Hanegbi.
Ahmad Gharabli/Agence France-Presse/Getty Images
Saudi Arabia, which has been in talks with the U.S. about normalizing relations with Israel, released a statement calling on both sides to exercise restraint. The kingdom said it had repeatedly warned about ” the dangers of the situation exploding as a result of the continued occupation (and) the Palestinian people being deprived of their legitimate rights.”
The attack comes at a time of historic division within Israel over Netanyahu’s proposal to overhaul the judiciary. Mass protests over the plan have sent hundreds thousands of Israeli demonstrators into the streets and prompted hundreds of military reservists to avoid volunteer duty — turmoil that has raised fears over the military’s battlefield readiness and raised concerns about its deterrence over its enemies.
The infiltration of fighters into southern Israel marked a major escalation by Hamas that forced millions of Israelis to hunker down in safe rooms. Cities and towns emptied as the military closed roads near Gaza. Israel’s rescue service and the Palestinian Health Ministry in Gaza appealed to the public to donate blood.
“We understand that this is something big,” Lt. Col. Richard Hecht, an Israeli army spokesman, told reporters. He said the Israeli military had called up the army reserves.
Hecht declined to comment on how Hamas had managed to catch the army off guard. “That’s a good question,” he said.
Ismail Haniyeh, the exiled leader of Hamas, said that Palestinian fighters were “engaged in these historic moments in a heroic operation” to defend the Al-Aqsa Mosque in Jerusalem and the thousands of Palestinian prisoners held by Israel.
“With rockets we somehow feel safer, knowing that we have the Iron Dome (missile defense system) and our safe rooms. But knowing that terrorists are walking around communities is a different kind of fear,” said Mirjam Reijnen, a 42-year-old volunteer firefighter and mother of three in Nahal Oz.
Israel has built a massive fence along the Gaza border meant to prevent infiltrations. It goes deep underground and is equipped with cameras, high-tech sensors and sensitive listening technology.
The escalation comes after weeks of heightened tensions along Israel’s volatile border with Gaza, and heavy fighting in the Israeli-occupied West Bank.
Saturday’s wide-ranging assault threatened to undermine Netanyahu’s reputation as a security expert who would do anything to protect Israel. It also raised questions about the cohesion of a security apparatus crucial to the stability of a country locked in low-intensity conflicts on multiple fronts and facing threats from Lebanon’s Hezbollah militant group.
Hezbollah congratulated Hamas on Friday, praising the attack as a response to “Israeli crimes” and saying the militants had “divine backing.” The group said its command in Lebanon was in contact with Hamas about the operation.
Israel has maintained a blockade over Gaza since Hamas seized control of the territory in 2007. The bitter enemies have fought four wars since then. There have also been numerous rounds of smaller fighting between Israel and Hamas and other smaller militant groups based in Gaza.
The blockade, which restricts the movement of people and goods in and out of Gaza, has devastated the territory’s economy. Israel says the blockade is needed to keep militant groups from building up their arsenals. The Palestinians say the closure amounts to collective punishment.
The rocket fire comes during a period of heavy fighting in the West Bank, where nearly 200 Palestinians have been killed in Israeli military raids this year. In the volatile northern West Bank, scores of militants and residents poured into the streets in celebration at the news of the rocket barrages.
Israel says the raids are aimed at militants, but stone-throwing protesters and people uninvolved in the violence have also been killed. Palestinian attacks on Israeli targets have killed over 30 people.
The tensions have also spread to Gaza, where Hamas-linked activists held violent demonstrations along the Israeli border in recent weeks. Those demonstrations were halted in late September after international mediation.
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U.S. stocks closed higher Friday, with the S&P 500 eking out a modest weekly gain, as investors assessed a monthly jobs report that showed both a blockbuster surge in jobs created along with a slowdown in wage pressures.
For the week, the Dow slipped 0.3% while the S&P 500 edged up 0.5% and the Nasdaq gained 1.6%. The Dow fell for a third straight week, while the S&P 500 snapped a four-week losing streak and the Nasdaq saw back-to-back weekly gains, according to Dow Jones Market Data.
U.S. stocks climbed Friday, after reversing course from their slide earlier in the session as investors parsed a U.S. employment report that was stronger than forecast.
“Wages slowed down,” said José Torres, senior economist at Interactive Brokers, in a phone interview Friday. “That was a great development” as the Federal Reserve aims to bring down inflation through monetary tightening.
Investors have worried that a hot labor market will keep wage growth elevated, adding to inflationary pressures that could see the Fed keep interest rates higher for longer or potentially hike its benchmark rate one more time this year.
A report Friday from the Bureau of Labor Statistics showed the U.S. economy created 336,000 jobs in September, far surpassing economists’ expectations for 170,000 new jobs. Also, the report said job gains in August and July were revised higher.
See: Jobs report shows big 336,000 gain in hiring in September. Labor market still hot.
But other details from the report were slightly more favorable in terms of monetary policy concerns.
For example, average hourly wages rose a mild 0.2% in September, bringing the 12-month rate of change through September to 4.2%, a slower pace than the prior month’s year-over-year rate of 4.3%.
“Even though the headline number was 2.5 times what Wall Street had anticipated, the more important detail below the surface was that wage inflation actually cooled,” said Sam Stovall, chief investment strategist at CFRA, during a phone interview with MarketWatch.
Renaissance Macro Research’s Neil Dutta said in a note that the jobs report was consistent with a soft landing for the economy and the Fed’s objective to lower the inflation rate back to 2%.
“The strong labor market gives credence to the base case still being a soft landing,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management, in a phone interview Friday. But that soft-landing narrative is “somewhat fragile and data dependent,” he said.
See: U.S. stocks stage a surprising rally on Friday. But can the party last?
Investors will be watching for data scheduled to be released next week on September inflation from the consumer-price index and producer-price index.
Meanwhile, economists from Goldman Sachs Group said in a note Friday that “the continued rebalancing of the labor market” is consistent with their expectation that the Fed is done raising rates this year, despite senior Fed officials projecting another hike in their latest batch of forecasts, released last month.
Federal-funds-futures traders are expecting the Fed will keep its benchmark rate at the current range of 5.25% to 5.5% at its policy meetings in November and December, according to the CME FedWatch Tool.
“I’m of the belief that the Fed will not hike again this year,” BMO’s Ma said. “I don’t think it needs to.”
Meanwhile, the yield on the 10-year Treasury note
BX:TMUBMUSD10Y
climbed 6.8 basis points to 4.783%, rising for five straight weeks, according to Dow Jones Market Data.
Rising Treasury yields, particularly on the long end of the yield curve, have been blamed for a selloff in stocks over the past couple months. But the S&P 500 is now up so far in October, with a small gain of 0.5%, according to FactSet data.
Steve Goldstein contributed to this report.
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OSLO, Norway (AP) — Imprisoned activist Narges Mohammadi won the Nobel Peace Prize Friday for fighting the oppression of women in Iran.
“She fights for women against systematic discrimination and oppression,” said Berit Reiss-Andersen, the chair of the Norwegian Nobel Committee who announced the prize in Oslo.
Authorities arrested Mohammadi in November after she attended a memorial for a victim of violent 2019 protests. Mohammadi has a long history of imprisonment, harsh sentences and international calls for reviews of her case.
Before being jailed, Mohammadi was vice president of the banned Defenders of Human Rights Center in Iran. Mohammadi has been close to Iranian Nobel Peace Prize laureate Shirin Ebadi, who founded the center.
Ebadi left Iran after the disputed re-election of then-President Mahmoud Ahmadinejad in 2009 that touched off unprecedented protests and harsh crackdowns by authorities. In 2018, Mohammadi, an engineer, was awarded the 2018 Andrei Sakharov Prize.
In 2022, Mohammadi was tried in five minutes and sentenced to eight years in prison and 70 lashes.
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Hours after being ousted as speaker of the House, Rep. Kevin McCarthy said he was “at peace” with how it played out and that he “wouldn’t change a thing.”
The California Republican said at a press conference Tuesday evening that he will not run for speaker again. He added that he hadn’t though about resigning from Congress.
Read more: Kevin McCarthy ousted: Here’s who could replace him as House speaker
McCarthy said he had no regrets: “I don’t regret standing up for choosing government over grievance. It is my responsibility. It is my job. I do not regret negotiating. Our government is designed to find compromise. I don’t regret my efforts to build coalitions and find solutions. I was raised to solve problems not create them.”
““I may have lost this vote today, but as I walk out of this chamber I feel fortunate to have served … I wouldn’t change a thing.””
McCarthy lashed out at Rep. Matt Gaetz, R-Fla., who led the effort to oust him as speaker. “It had nothing to do about spending,” McCarthy said. “It was all about getting attention.”
As for the eight hardline Republicans who voted against him, McCarthy said “They don’t get to say they’re conservative because they’re angry and chaotic.”
He also blamed Democrats for his ouster, and said the current system in the House of Representatives is broken. “My fear is the institution fell today, because you can’t do the job,” he said.
“Unfortunately, 4 percent of our conference can join all the Democrats and dictate who can be the Republican speaker in this House.”
When asked if he had any advice for the next speaker, McCarthy said: “Change the rules.”
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Kevin McCarthy has been ousted as speaker of the House of Representatives, and he said Tuesday night that he won’t try to reclaim his post. So who might replace him?
That person, and the return of stability to Capitol Hill after an historic measure to take the speaker’s gavel from McCarthy, could help calm markets, analysts say. But the process of settling on a new speaker could drag out longer than markets would like.
Here are the names of a few candidates to watch:
Matt Gaetz, the Florida Republican who led the charge to oust McCarthy, said he was open to supporting Rep. Steve Scalise of Louisiana. Scalise is the No. 2 House Republican but is also undergoing treatment for blood cancer. Gaetz said that treatment wasn’t a factor in his support.
Minnesota Republican Tom Emmer is the House’s No. 3 Republican and has been mentioned by other members as a potential replacement. Some of the GOP’s hard-right faction have said Emmer would deliver more conservative results for the party, according to a Washington Post report.
Emmer is a cryptocurrency
BTCUSD,
supporter and co-chairman of the Congressional Blockchain Caucus.
Patrick McHenry, a North Carolina Republican who leads the House Financial Services Committee, is another possibility. He was one of the negotiators of the deal with the Biden administration to raise the debt ceiling — which could actually hurt him with some conservatives.
McHenry is now speaker pro tempore, or temporary speaker, until the election of a new speaker.
New York Rep. Elise Stefanik is the House GOP Conference Chair, the highest-ranking Republican woman in Congress. She is close to former President Donald Trump.
The fight over McCarthy’s speakership played out after lawmakers extended until Nov. 17 funding for the federal government. The move avoided a shutdown but only kicks the funding can down the road. It’s unclear how long it will take to elect a new speaker, but having the battle now keeps it distanced from a key deadline.
“From a governance standpoint, having this fight early in the government-funding window is far better than on the eve of November 17 when funding expires,” said Chris Krueger of TD Cowen, in a note.
Also read: What McCarthy’s ouster means for markets as investors fret over congressional ‘dysfunction’
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Another round of political infighting that ended up spelling the end of Kevin McCarthy’s short tenure as House speaker on Tuesday wasn’t the primary driver of a selloff in stocks and bonds — but it didn’t help, analysts said.
Continued dysfunction in Congress goes a long way toward explaining why the bond market has been ”out of sorts,” said Jamie Cox, managing partner for Harris Financial Group, in emailed comments.
As the House began to vote on a motion by Republican Rep. Matt Gaetz of Florida to remove McCarthy from the speakership, stocks closed sharply lower. The Dow Jones Industrial Average
DJIA
fell more than 430 points, or 1.3%, to wipe out its 2023 gain, while the S&P 500
SPX
posted its lowest close since June 1.
The drop came in response to a continued surge in Treasury yields that saw the rate on the 10-year note
BX:TMUBMUSD10Y
end above 4.80% at its highest since August 2007. Yields and debt prices move opposite each other.
See: Rising Treasury yields are upsetting financial markets. Here’s why.
McCarthy, a California Republican, lost the gavel as 216 members of the House voted in favor of ousting him while 210 supported him in a historic challenge.
Read: Kevin McCarthy ousted as House speaker, falling after historic challenge by Matt Gaetz
Analysts have pointed to a number of factors behind the continued climb in yields, including the Federal Reserve signaling last month that rates could stay high through 2024 and beyond.
But market watchers said continued drama in Washington is doing nothing to soothe market volatility, with the showdown over McCarthy’s fate the result of a last-minute deal over the weekend that saw lawmakers temporarily avert a government shutdown. The latest turmoil comes just months after a debt-ceiling showdown that put the U.S. government on the brink of a first-ever default.
“Investors are sick and tired of being jerked around with out of control spending, the inability to govern, and the constant dragging of markets to the edge of economic calamity with shutdowns and debt ceiling nonsense,” Cox wrote.
McCarthy’s removal means a mid-November government shutdown, when stopgap funding runs out, is now an 80% probability, said Terry Haines, founder of Pangaea Policy, in a note.
“[I]t’s not a one-off shutdown markets should be concerned about, but increased volatility for at least 3 months where markets won’t know final decisions on U.S. government annual spending, particularly in government-dependent sectors including defense, semiconductors, and healthcare,” Haines said.
Tom Essaye, founder of Sevens Report Research, warned that the ”more dysfunctional” Congress appears, ”the higher yields go and the more stocks drop.”
”So, while congressional dysfunction isn’t the main reason yields are volatile, it is a contributor and the sooner Washington removes itself from the market dialogue, the better,” he said in a Tuesday morning note.
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Kevin McCarthy has been ousted as speaker of the House of Representatives, and he said Tuesday night that he won’t try to reclaim his post. So who might replace him?
That person, and the return of stability to Capitol Hill after an historic measure to take the speaker’s gavel from McCarthy, could help calm markets, analysts say. But the process of settling on a new speaker could drag out longer than markets would like.
Here are the names of a few candidates to watch:
Matt Gaetz, the Florida Republican who led the charge to oust McCarthy, said he was open to supporting Rep. Steve Scalise of Louisiana. Scalise is the No. 2 House Republican but is also undergoing treatment for blood cancer. Gaetz said that treatment wasn’t a factor in his support.
Minnesota Republican Tom Emmer is the House’s No. 3 Republican and has been mentioned by other members as a potential replacement. Some of the GOP’s hard-right faction have said Emmer would deliver more conservative results for the party, according to a Washington Post report.
Emmer is a cryptocurrency
BTCUSD,
supporter and co-chairman of the Congressional Blockchain Caucus.
Patrick McHenry, a North Carolina Republican who leads the House Financial Services Committee, is another possibility. He was one of the negotiators of the deal with the Biden administration to raise the debt ceiling — which could actually hurt him with some conservatives.
McHenry is now speaker pro tempore, or temporary speaker, until the election of a new speaker.
New York Rep. Elise Stefanik is the House GOP Conference Chair, the highest-ranking Republican woman in Congress. She is close to former President Donald Trump.
The fight over McCarthy’s speakership played out after lawmakers extended until Nov. 17 funding for the federal government. The move avoided a shutdown but only kicks the funding can down the road. It’s unclear how long it will take to elect a new speaker, but having the battle now keeps it distanced from a key deadline.
“From a governance standpoint, having this fight early in the government-funding window is far better than on the eve of November 17 when funding expires,” said Chris Krueger of TD Cowen, in a note.
Also read: What McCarthy’s ouster means for markets as investors fret over congressional ‘dysfunction’
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The Japanese yen roared back violently against the dollar Tuesday amid fears of intervention by Tokyo after trading at its weakest in nearly a year after a round of strong U.S. employment data.
The U.S. dollar fetched 148.92 Japanese yen
USDJPY,
down 0.6%, after trading as low as 147.415 yen in a sharp tumble from a session high of 150.18 yen. The dollar hadn’t traded above the 150-yen level since Oct. 21, 2022, according to FactSet data.
Japanese authorities in the fall of 2022 intervened in the market, selling dollars and buying yen as the Japanese currency slumped. Currency traders had been on the lookout for renewed intervention as the yen extended its recent weakness. Japan’s Ministry of Finance has issued several verbal warnings over recent weeks, but they have failed to arrest the yen’s fall.
Finance Minister Shunichi Suzuki earlier Tuesday had warned that “all measures are on the table with a high sense of urgency,” according to Nikkei.
But FX analysts were skeptical the yen’s bounceback was due to intervention.
“Talk of intervention but I am skeptical. It seems like the market is doing it to itself with orders to sell dollar above JPY150. BOJ intervened three times last year, none was during US time zone,” said Marc Chandler, managing director at Bannockburn Global Forex, in a note to clients.
The dollar had initially extended its rally versus the yen and other major currencies after data showed U.S. job openings jumped unexpectedly to 9.6 million in September, up from a revised 8.9 million in August. Analysts surveyed by The Wall Street Journal had expected a reading of 8.8 million.
Continued strength in the labor market added to a rise in Treasury yields
BX:TMUBMUSD10Y,
which in turn boosted the dollar. The ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, remained up 0.1% at 107.06, after trading at its highest since November.
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Rep. Matt Gaetz of Florida filed a resolution late Monday to remove House Speaker Kevin McCarthy, a fellow Republican, from his post as their chamber’s leader.
The congressman had promised to make the move against McCarthy after the speaker on Saturday relied on the support of House Democrats to pass a short-term measure that averted a partial government shutdown. McCarthy had responded to Gaetz’s challenge by saying “Bring it on.”
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LOS ANGELES — California Gov. Gavin Newsom will name Laphonza Butler, a Democratic strategist and adviser to Kamala Harris’ presidential campaign, to fill the vacant U.S. Senate seat held by the late Sen. Dianne Feinstein, a spokesman in his office said Sunday.
In choosing Butler, Newsom fulfilled his pledge to appoint a Black woman if Feinstein’s seat should become open. However, he had been facing pressure by some Black politicians and advocacy groups to select Rep. Barbara Lee, a prominent Black congresswoman who is already running for the seat.
Butler will be the only Black woman serving in the U.S. Senate, and the first openly LGBTQ person to represent California in the chamber.
The long-serving Democratic senator died last Thursday after a series of illnesses. Butler leads Emily’s List, a political organization that supports Democratic women candidates who favor abortion rights. She also is a former labor leader with SEIU 2015, a powerful force in California politics.
Butler currently lives in Maryland, according to her Emily’s List biography.
She did not immediately respond to an email seeking comment. A spokesman in Newsom’s office who declined to be named confirmed to The Associated Press that Newsom had chosen Butler.
Democrats control the Senate 51-49, though Feinstein’s seat is vacant. A quick appointment by Newsom will give the Democratic caucus more wiggle room on close votes, including nominations that Republicans uniformly oppose. She could be sworn in as early as Tuesday evening when the Senate returns to session.
Feinstein, the oldest member of Congress and the longest-serving woman in the Senate, died at age 90 after a series of illnesses. She said in February she was would not seek reelection in 2024. Lee is one of several prominent Democrats competing for the seat, including Democratic U.S. Reps. Katie Porter and Adam Schiff. Newsom said he did not want to appoint any of the candidates because it would give them an unfair advantage in the race.
His spokesman Anthony York said the governor did not ask Butler to commit to staying out of the race. Dec. 8 is the deadline for candidates to file for the office.
Butler has never held elected office but has a long track record in California politics. She served as a senior adviser to Harris’s 2020 presidential campaign while working at a political firm filled with strategists who have worked for Newsom and many other prominent state Democrats. She also briefly worked in the private sector for Airbnb.
She called Feinstein “a legendary figure for women in politics and around the country,” in a statement posted after Feinstein’s death.
Emily’s List, the group Butler leads, focuses on electing Democratic women who support abortion rights. With the U.S. Supreme Court’s 2022 decision to overturn women’s constitutional right to abortion, the issue has become a galvanizing one for many Democrats.
It’s not Newsom’s first time selecting a U.S. senator, after being tasked with choosing a replacement for Kamala Harris when she was elected vice president; at that time he selected California Secretary of State Alex Padilla for the post. It was one of a string of appointments Newsom made in late 2020 and early 2021, a power that gave him kingmaker status among the state’s ambitious Democrats.
The seat is expected to stay in Democratic hands in the 2024 election. Democrats in the liberal-leaning state have not lost a statewide election since 2006, and the party holds a nearly 2-to-1 voter registration advantage over Republicans.
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A group of Democrats in the House and Senate are imploring the country’s top antitrust enforcement cop to implement sweeping new changes to its merger-review protocol, according to a new letter viewed exclusively by MarketWatch.
The Federal Trade Commission, along with the Justice Department’s antitrust division, recently proposed changes to forms that companies proposing deals of a certain size must submit to the government, which critics say would suppress the market for mergers and acquisitions.
The new form will require companies to provide much more information to antitrust enforcers before they seek to consummate a deal. Most controversially, that would include narrative information about the strategic rationale for a transaction as well as studies, surveys, analyses and reports which were prepared by the company as it considered the deal.
“The new proposed [form] and associated instructions will facilitate efficient premerger review and ensure effective enforcement of antitrust laws,” wrote the lawmakers, including Sens. Elizabeth Warren, a Massachusetts Democrat, and Bernie Sanders of Vermont, an independent who votes with Democrats.
The letter, dated Sept. 27, was also signed by Democrats including Sen. Mazie Hirono of Hawaii, and Reps. Becca Balint of Vermont, Henry Johnson of Georgia, Rashida Tlaib of Michigan, Summer Lee of Pennsylvania, Lori Trahan of Massachusetts, Ilhan Omar of Minnesota, Mark Pocan of Wisconsin, Katie Porter of California and Greg Casar of Texas. No Republicans signed the letter.
The lawmakers lament the state of the U.S. economy today, arguing that the updated premerger process is necessary to combat growing concentration of industry and the digital transformation of the economy.
“Unchecked consolidation hurts consumers, small businesses, workers, and the economy,” the letter reads. “Consolidation leads to higher prices, less innovation, and reduced quality for consumers. It prevents small businesses from entering markets or competing fairly: for example it is twice as expensive for small businesses to borrow money compared to dominant ones, and there are fewer startups in states where a few companies dominate markets.”
The lawmakers note that since the current premerger notification process was instituted nearly 45 years ago, the required forms have not been updated, and only require companies to provide basic information that don’t “give regulators clarity as to whether a deal may substantially lessen competition.”
The FTC and DOJ proposed the changes in July, and then extended the period for accepting public comments on the proposal to Sept. 27, and it’s possible the final rule is amended before the agencies adopt it. There is no set timeline for when the FTC will vote to adopt any changes.
Some antitrust experts are skeptical that the proposed changes will hold up in court, if they are implemented as proposed.
“The proposed changes are likely to face a rocky path ahead,” wrote Justin Hurwitz of the University of Pennsylvania’s Center for Technology, Innovation & Competition, in a recent analysis.
“They appear to violate legislative intent that [the premerger process] not unduly delay transactions or require the production of materials the firms did not already create as par of evaluating the transaction.”
Hurwitz added that “the premerger notification process serves an important function, but it is a tax on on all mergers,” and predicted that the proposed changes will likely not “survive judicial review.”
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Analysts are ringing alarm bells over a surge by the U.S. dollar, warning it may be set to serve as another “headwind” for U.S. stocks as they struggle through a losing September.
“Since early August, the USD (U.S. dollar) has climbed above its average [second-quarter] level. That means that for corporates, the USD switched back from tailwind to headwind…and an increasing one” as investors close out the third quarter this week, said Andrew Greenebaum of Jefferies, in a Saturday note.
A rapidly strengthening dollar is often seen as a problem for big, U.S. multinationals. A stronger dollar makes their goods more expensive to overseas buyers. And income earned overseas will be less valuable on their income statements.
The U.S. dollar went on a tear in 2022 as Treasury yields surged in response to the Federal Reserve’s aggressive series of interest-rate hikes. The ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, hit a 20-year high last September, but then retreated sharply.
The pullback, which saw the index drop from a high near 115 last fall to a low below 100 in July, was seen as a tailwind for stocks. The S&P 500
SPX
saw its bear-market bottom in October of last year, and built on its rally through the winter and spring. Since late July, stocks have suffered a pullback, with the large-cap benchmark down around 5.5% from its 2023 high set on July 31.
“After creating a substantial headwind to profits for U.S. multinationals, it’s been a tailwind [year to date]. But that all changed roughly 10 weeks ago,” Greenebaum wrote.
The DXY has ripped higher by around 4% in that short time frame, a move more than one standard deviation outside the norm, he noted. And that sort of move has tended have implications for both company fundamentals and asset allocation.
The chart above breaks out the average performance of key indexes, including the S&P 500, S&P 500 cyclicals, small-caps (RTY), the Nasdaq-100
NDX
and the MSCI All-World excluding U.S.
Small-caps are typically expected to outperform during periods of dollar strength, since most of their revenues come from within the U.S. Cyclical stocks are expected to suffer.
A rising dollar also tightens financial conditions, adding to other headwinds for stocks heading into the fourth quarter, said analysts at Morgan Stanley, in a Monday note (see chart below).
“With the 10-year real rate at a 16-year high above 2.0%, the U.S. dollar is surging, producing meaningful headwinds for U.S. multinationals,” they wrote.
“Oil is becoming a constraint as well, with West Texas Intermediate crude
CL00,
up more than 30% from its spring trough. Together with indications that bank lending and credit availability are already shrinking, these factors suggest the liquidity backdrop may worsen,” they wrote.
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Citi has released a list of 20 large-cap growth stocks that it says present opportunities in the event of a pullback.
“Our call since early summer has been to hold Growth and look to buy on pullbacks,” Citi analyst Scott Chronert said in a note released Monday, adding that Citi has had a tactical preference for cyclicals. “However, on the heels of the strong Cyclicals surge during June and July, and our upwardly revised S&P 500 target of 4600, the messaging has been to buy on pullbacks more broadly,” he wrote.
Citi also notes that the Russell 1000 Growth Index
RLG
has sold off more than 6% from its mid-July high, although two-thirds of the stocks in the index are down 10% or more, with one-third down more than 20%. “This sets up for interesting intermediate to long-term stock selection opportunities,” Chronert said.
Related: Preorders for the iPhone 15 have begun, and here’s a sign they’ve been ‘solid’
The analyst acknowledged that there is still a risk of economic softening ahead, if not a recession. “Yet, the argument that Growth stocks can show fundamental resilience during periods of broader economic weakening is a theme that we have considered for several years now,” he said.
Set against this backdrop, the analyst firm has compiled a tech-heavy list of 20 stocks that have a buy rating from Citi, have at least 75% of market cap assigned to growth, according to Russell, and have experienced a decline of 10% or more from year-to-date highs since March 31. Other common characteristics of the stocks include consensus estimates of free cash flow per share above March 31 levels and free cash flow per share within or above market-implied five-year-forward estimates.
Tech heavyweights Apple Inc.
AAPL,
and NVIDIA Corp.
NVDA,
are on the list, along with Pinterest Inc.
PINS,
Lam Research Corp.
LRCX,
Teradata Corp.
TDC,
Datadog Inc.
DDOG,
MongoDB Inc.
MDB,
HubSpot Inc.
HUBS,
and KLA Corp.
KLAC,
The other stocks cited by Citi are Lockheed Martin Corp.
LMT,
DraftKings Inc.
DKNG,
Las Vegas Sands Corp.
LVS,
Chipotle Mexican Grill Inc.
CMG,
Netflix Inc.
NFLX,
TKO Group Holdings Inc.
TKO,
Rockwell Automation Inc.
ROK,
and Paycom Software Inc.
PAYC,
and healthcare stocks Bruker Corp.
BRKR,
Insulet Corp.
PODD,
and Intuitive Surgical Inc.
ISRG,
Related: Will Nvidia stock be like Apple or Cisco in the AI era?
Shares of Apple, which recently launched its iPhone 15, are down 5.5% in the last three months. Shares of chip maker NVIDIA are up 2.8% over the same period, while Lockheed Martin is down 8.9% and DraftKings is up 8.6%. Las Vegas Sands is down 21.8% and Chipotle is down 8.8%, while Netflix is down 7.8%.
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The U.S. dollar has completed its first “golden cross” since July 2021, which could mean the greenback is going higher, creating more problems for stocks.
Heading into Friday’s settlement, the 50-day average on the ICE U.S. Dollar Index
DXY,
a gauge of the buck’s value against a basket of its biggest rivals that’s heavily weighted toward the euro, stands at 103.15, higher than the 200-day moving average, which was 103.11.
The index itself finished at 105.56 on Friday, trading at its highest level since March 10, 2023, the day that the Silicon Valley Bank collapsed, sparking a brief rally in safety plays like the dollar. It climbed 0.2% this week, booking its 10th straight weekly advance, its longest such streak since a 12-week sprint that ended in October 2014.
A golden cross occurs when the 50-day moving average closes above the 200-day moving average. It’s a popular signal among technical analysts and often — though definitely not always — signals that momentum is building in a given direction.
On the other hand, a “death cross” occurs when the 50-day moving average breaks below the 200-day. A “death cross” in the U.S. dollar occurred on Jan. 10. Afterward, the buck trended lower for the next six months, ultimately hitting its lowest level of 2023 on July 14. Since then, the buck has been in a sustained uptrend that some currency strategists think has grounds to continue, now that the Federal Reserve bolstered its forecast to keep interest rates above 5% through 2024.
According to an analysis by Dow Jones Market Data, the dollar typically continues to climb during the three months following a golden cross, gaining an average of 1.9%, while trading higher 79.2% of the time over. Performance is more mixed one year out, with the buck higher 58.3% of the time, with an average gain of 1.5%.
And if the previous golden cross is any guide, the dollar’s recent gains could be just the beginning of a larger advance. After a previous golden cross on July 29, 2021, the dollar index gained roughly 25%, advancing from about 91 to just shy of 115 in late September of 2022, when it touched its strongest level in two decades, according to FactSet data.
Some analysts have warned that the dollar’s advance, alongside rising Treasury yields, could create more problems for stocks. The S&P 500
SPX
fell more than 1.6% on Thursday, its biggest drop in a single day since March 22, according to Dow Jones Market Data.
“A new cycle high in yields and a golden-cross in the dollar are strong headwinds for the market,” said Jeffrey deGraaf, a technical strategist at Renaissance Macro Research, in a note to clients.
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U.S. Sen. Bob Menendez of New Jersey and his wife were indicted Friday on bribery charges after an investigation that turned up $100,000 in gold bars and $480,000 in hidden cash at their home, prosecutors said.
Federal prosecutors announced the charges against the 69-year-old Democrat nearly six years after an earlier criminal case against him ended with a deadlocked jury. They said a search of Bob Menendez’s home turned up $100,000 in gold bars and $480,000 in hidden cash.
The latest indictment is unrelated to the earlier charges that alleged Menendez accepted lavish gifts to pressure government officials on behalf of a Florida doctor.
The Senate Historical Office says Menendez appears to be the first sitting senator in U.S. history to have been indicted on two unrelated criminal allegations.
A lawyer for Menendez’s wife hasn’t responded to a message seeking comment. Messages were left for Menendez’s Senate spokesperson and his political consultant.
The first time Menendez was indicted, he had been accused of using his political influence to help a Florida eye doctor who had lavished him with gifts and campaign contributions.
The new charges follow a years-long investigation that examined, among other things, the dealings of a New Jersey businessman — a friend of Menendez’s wife — who secured sole authorization from the Egyptian government to certify that meat imported into that country meets Islamic dietary requirements.
Investigators also asked questions about the Menendez family’s interactions with a New Jersey developer.
Menendez’s political career had looked as though it might be over in 2015, when a federal grand jury in New Jersey indicted him on multiple charges over favors he did for a friend, Dr. Salomon Melgen.
Menendez was accused of pressuring government officials to resolve a Medicare billing dispute in Melgen’s favor, securing visas for the doctor’s girlfriends and helping protect a contract the doctor had to provide port-screening equipment to the Dominican Republic.
Menendez has always maintained his innocence. His lawyers said campaign contributions and gifts from Melgen — which included trips on his private jet to a resort in the Dominican Republic and a vacation in Paris — were tokens of their longtime friendship, not bribes.
Prosecutors dropped the case after a jury deadlocked in November 2017 on charges including bribery, fraud and conspiracy, and a judge dismissed some counts.
The Senate Ethics Committee later rebuked Menendez, finding that he had improperly accepted gifts, failed to disclose them and then used his influence to advance Melgen’s personal interests.
But months later, New Jersey voters returned Menendez to the Senate. He defeated a well-financed challenger in a midterm election that broke a Republican lock on power in Washington.
Melgen was convicted of health care fraud in 2017 but former President Donald Trump commuted his prison sentence.
Menendez is widely expected to run for reelection next year.
The son of Cuban immigrants, Menendez has held public office continuously since 1986, when he was elected mayor of Union City, New Jersey. He was a state legislator and spent 14 years in the U.S. House of Representatives. In 2006, Gov. Jon Corzine appointed Menendez to the Senate seat he vacated when he became governor.
At least two other senators — Kay Bailey Hutchinson, R-Texas; Richard Kenney, D-Delaware — were indicted on multiple occasions while still in office, but each senator’s indictments covered overlapping allegations, according to the Senate Historical Office.
Neither Kenney nor Hutchinson were ultimately convicted, and both went on to serve their full terms. In total, 13 senators have been indicted throughout history, of which six have been convicted, according to the Senate Historical Office. Two of those convictions were overturned.
Menendez first publicly disclosed that he was the subject of a new federal investigation last October.
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U.S. stocks ended modestly lower Friday, with the Dow Jones Industrial Average falling for a fourth consecutive day in its longest daily losing streak since June. The S&P 500 and Nasdaq each logged a third-straight weekly decline as rising bond yields rocked equities in the wake of the Federal Reserve meeting on Wednesday.
For the week, the Dow fell 1.9%, the S&P 500 dropped 2.9% and the Nasdaq Composite slumped 3.6%. The S&P 500 and Nasdaq each booked their biggest weekly percentage drop since March, according to Dow Jones Market Data.
Stocks slipped after two days of selling sparked by the Federal Reserve projecting its policy interest rate would remain above 5% well into next year.
The notion in markets that the Fed would be cutting rates soon was “offsides,” leading to a “knee-jerk reaction” in bond markets that hurt stocks, said Michael Skordeles, head of U.S. economics at Truist Advisory Services, in a phone interview Friday. In his view, the central bank may cut its benchmark rate just once in the second half of next year, if at all, as inflation remains too high in a “resilient” U.S. economy with a “still fairly strong” labor market.
Rapidly rising Treasury yields have been blamed for much of the pain in stocks. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
climbed 11.7 basis points this week to 4.438%, dipping on Friday after on Thursday rising to its highest level since October 2007, according to Dow Jones Market Data.
Senior Fed officials who spoke Friday voiced support for the more aggressive monetary policy path signaled by Fed Chair Jerome Powell on Wednesday.
Boston Federal Reserve President Susan Collins said rates are likely to stay “higher, and for longer, than previous projections had suggested,” while Fed Gov. Michelle Bowman said it’s possible the Fed could raise rates further to quell inflation. The latest Fed “dot plot,” released following the close of the central bank’s two-day policy meeting on Wednesday, showed senior Fed officials expect to raise rates once more in 2023.
Meanwhile, the S&P 500 finished Friday logging a third straight week of declines, with consumer-discretionary stocks posting the worst weekly performance among the index’s 11 sectors by dropping more than 6%, according to FactSet data.
“Markets weakened this week following an extended period of calm, as the hawkish tone adopted by Fed Chair Powell following the FOMC meeting caused the decline,” said Mark Hackett, Nationwide’s chief of investment research, in emailed comments Friday. “Bears have wrestled control of the equity markets from bulls.”
Economic data on Friday showed some weakness in the U.S. services sector, while manufacturing activity recovered slightly but remained in contraction, according to S&P U.S. purchasing managers indexes.
Still the U.S. economy has been largely resilient despite a hawkish Fed, with “strong economic growth driving fears of continued inflation pressure,” said Hackett. He also pointed to concerns that a “too strong” economy and “developing clouds” such as strikes, a potential government shutdown, and student loan repayments “will impact consumer activity.”
Read: Government shutdown: Analysts warn of ‘perhaps a long one lasting into the winter’
Jamie Cox, managing partner at Richmond, Virginia-based wealth-management firm Harris Financial Group, said by phone on Friday that he’ll become concerned about the impact of a government shutdown on markets if it stretches for longer than a month.
“I’m only worried if it goes past a month,” said Cox, explaining he expects “little” economic impact if a government shutdown lasts a couple weeks.
Meanwhile, United Auto Workers President Shawn Fain said Friday that the union is expanding its strike to 38 General Motors Co.
GM,
and Stellantis NV’s
STLA,
auto-parts distribution centers in 20 states, hobbling the two carmakers’ repair network.
“We’re seeing strike after strike,” which overtime could fuel wage growth that’s already “robust,” said Truist’s Skordeles. That risks adding to inflationary pressures in the economy, he said. And while U.S. inflation has eased “dramatically,” said Skordeles, “it isn’t down to where it needs to be.”
Steve Goldstein contributed to this report.
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Campbell Harvey, a Duke University finance professor best known for developing the yield-curve recession indicator, says the Federal Reserve’s read on inflation is out of whack. And, as a result, the likelihood that the U.S. slips into a recession is increasing.
The big question now is the severity of the economic downturn to come, if the central bank continues unabated on its high-interest-rate path.
On Wednesday, the Fed, which began raising rates from near zero last year, held them at a range of 5.25% to 5.5%, a 22-year high, in its effort to get inflation under control.
“The [inflation gauge] that the Fed uses makes no sense whatsoever, and it’s totally disconnected from market conditions,” Harvey told MarketWatch in a phone interview.
The Fed’s measures of inflation are heavily weighted toward shelter costs, which reflect the rising price of rental and owner-occupied housing. For example, shelter inflation has been running at 7.3% over the past 12 months, and also as of the most recent consumer-price index, for August. Shelter represents around 40% of the core CPI reading.
Harvey says that’s a problem because shelter’s retreat loosely follows the broader trend lower for headline inflation but at a lag, and the Fed wouldn’t be properly accounting for that lag if it decided to keep its target interest rates restrictively high.
Separately, MarketWatch’s economics reporter, Jeff Bartash, notes that CPI also fails to capture the millions of Americans who locked in low mortgage rates before or during the pandemic and who are now paying less for housing than they had previously.
“The Fed is … using inflation, in what I call a false narrative,” Harvey said.
Opinion: Fed’s ‘golden handcuffs’: Homeowners locked into low mortgage rates don’t want to sell
Also see: U.S. mortgage rates ‘linger’ over 7%, Freddie Mac says, slowing the housing market further
Harvey said that if shelter inflation were normalized at around 1% or 1.5%, overall core inflation would measure closer to 1.5% or 2%. In other words, at — or substantially below — the Fed’s 2% target.
Consumer prices ex-shelter were up 1.9% on a year-over-year basis in August, up from 1% in July, according to the Labor Department.
The Canadian-born Duke professor says that the Fed risks driving the U.S. economy into recession because it has achieved its goal of taming inflation, which peaked at around 9% in 2022, and isn’t making it clear that its rate-hike cycle is complete.
“Now, the higher those rates go, the worse [the recession] is,” he said.
Harvey pioneered the idea that an inverted yield curve is a recession indicator, with the curve’s inversion depicting the yield on three-month Treasurys rising above the rate on the 10-year Treasury note
BX:TMUBMUSD10Y.
Longer-term Treasurys typically have higher yields than shorter-term U.S. government debt, and the inversion of that relationship historically has predicted economic contractions.
Harvey says that that his yield-curve-inversion model has an unblemished track record — 8-out-of-8 — for predicting recessions over the past 70 years. A recent inversion of U.S. yield curves implies that a U.S. recession is still a possibility.
Opinion: The U.S. could be in a recession and we just don’t know it yet
Also see: Are markets getting more worried about a recession? Invesco says a Fed pivot is coming.
On Thursday, the Dow Jones Industrial Average
DJIA
fell 1.1%, while the S&P 500
SPX
tumbled1.6% and the Nasdaq Composite
COMP
slumped 1.8%, marking one of the worst days for stocks in months.
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The Bank of England decision promised to be a cliff hanger, and it was, even for the nine people deciding what to do.
Breaking a string of 14 consecutive rate rises, the Bank of England opted to hold rates at 5.25%.
It was a narrow 5-4 vote in favor of the pause, with Gov. Andrew Bailey on the side of the majority.
The…
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