[Chart courtesy of MarketWatch.com]

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The financial markets were significantly impacted by climbing bond yields and surging oil prices, which drove the major indexes down throughout the session.

The 10-year yield rose above the 4% mark for the first time since August, rebounding from a low of 3.60% in September. This sharp increase comes despite the Federal Reserve’s efforts to lower rates.

Last week was turbulent, with only modest gains for the averages. However, a better-than-expected jobs report, at least in terms of the headline number, has led traders to believe that the Fed might achieve a soft landing for the economy.

While this outcome remains uncertain, the long-term trend is still upward, and we plan to stay the course until it changes. The Fed’s minutes from its last meeting will be released on Wednesday, followed by the Consumer Price Index (CPI) report on Thursday.

Expectations for rate cuts plummeted, causing all major indexes to decline. The MAG7 basket was also affected by Google’s weakness due to an app store injunction requiring them to open their app store to competition.

The most shorted stocks fell, erasing Friday’s gains. Bond yields surged further, with both the 2-year and 10-year yields piercing the 4% level. Interestingly, the dollar remained stable, and gold stayed within its recent trading range.

Bitcoin exhibited volatility, rallying, and then receding twice, influenced by the Google headlines.

Meanwhile, the risk of a U.S. foreign default continues to rise.

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GOVERNMENT JOBS SOAR, PRIVATE SECTOR GROWTH LAGS

[Chart courtesy of MarketWatch.com]

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The much-anticipated jobs report exceeded expectations, driving major indexes higher. However, the question remains: how much will these figures be revised in the future? Historically, six out of the last seven releases have been significantly downgraded.

Nonfarm payrolls surged by 254,000 jobs last month, far surpassing the expected 150,000 and marking the largest increase since March. The unemployment rate also improved, dropping to 4.1% from 4.2%.

Traders reacted positively to this news, interpreting it as a sign of a robust labor market and a resilient economy. This optimism persists despite ongoing issues such as record layoffs, bankruptcies, soaring food prices, and struggling consumers.

A closer examination of the jobs report reveals fewer encouraging details. Government employment saw a record increase, while private sector job growth was limited to 133,000, reflecting the current challenges in the labor market.

The US Citi Surprise Index turned positive this week, with rate-cut expectations plummeting and bond yields surging. The 10-year yield, which had recently dipped to 3.60%, rebounded sharply towards the critical 4% threshold, last seen in August. This movement strengthened the dollar, which rose for five consecutive days, but it also led to declines in gold and Bitcoin prices.

Amid persistent Middle East tensions, crude oil prices spiked, achieving their best week since October 2022.

Despite the positive jobs report, concerns about the increasing risk of a US sovereign default remain. Will this risk diminish as it did after peaking in May, or is this time different?

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[Chart courtesy of MarketWatch.com]

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The stock market exhibited a pattern of bobbing and weaving today, as uncertainty dominated, and the major indexes fluctuated around their respective unchanged lines.

October has started on a weak note, with sentiment dampened by escalating tensions in the Middle East and the uncertain impact and duration of the East Coast port strike. Both events are expected to negatively affect the economy, but the extent of this impact remains unclear.

Growing concerns have driven oil prices up by nearly 4%, pushing them above the $73 mark to reach one-month highs. Energy equities followed suit, and even some tech heavyweights saw gains, with Nvidia rising over 3%.

Initial jobless claims continue to decline, despite a 53.4% year-over-year increase in job cut announcements. Once these job cuts translate into actual layoffs, we can expect the trend in jobless claims to reverse and head higher.

Bond yields rose due to underlying inflation data, rising oil prices, and a surprising drop in rate-cut expectations, all of which sent the dollar higher and the major indexes lower. Bitcoin found support at $60,000, while gold maintained its gains, adding 0.31% for the session.

Meanwhile, U.S. sovereign risk continued to climb, as did the Citi Economic Surprise Index, which has now reached six-month highs. This raises the question: Was the economy really in need of a 0.5% rate cut?

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[Chart courtesy of MarketWatch.com]

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The markets began the second day of October in negative territory, driven by escalating tensions in the Middle East. Despite this, the markets closed relatively unchanged, with China’s recent upward trend continuing, bolstered by their substantial stimulus program.

Nike experienced a significant 7% drop after canceling its full-year guidance ahead of a new CEO’s arrival. Meanwhile, the tech sector lacked direction, with Tesla shares falling over 4% due to disappointing delivery numbers.

Traders currently view these geopolitical tensions as a temporary disruption. However, the potential economic impact could be more severe, especially as the effects of the East Coast port strike become apparent.

On a positive note, ADP data revealed better-than-expected private payroll growth last month, with 143,000 new jobs created compared to the anticipated 125,000. However, this does not guarantee that Friday’s nonfarm payroll report will follow the same trend. The upcoming report could significantly influence the market’s direction and the Federal Reserve’s next interest rate decision.

The MAG7 basket initially slipped but managed to recover, cutting its early losses as bond yields rose. This increase supported the dollar but negatively impacted gold and Bitcoin, with the latter experiencing a more substantial decline.

Crude oil prices fluctuated after yesterday’s rally, as Middle East tensions remained high. Although it was a quiet day in the markets, this could quickly change with the release of the payroll numbers on Friday.

Seasonally, we have entered one of the most volatile periods of the year, with the VIX likely to increase significantly, as indicated in this chart.

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