Morning in New York: investors assess geopolitical risks

Daily review and forecast of events on the U.S. stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

Today investors' focus will shift to geopolitical tensions. At the center of attention is the escalating trade relations between the U.S. and China. President Trump's criticism of Beijing's halting purchases of U.S. soybeans and his intention to raise the issue at a meeting with President Xi next month add to the uncertainty. China, in turn, is increasing its soybean purchases in South America, which could further strain U.S. relations with Argentina. These developments could trigger volatility in commodity markets and put pressure on equities.

Tensions also remain over Taiwan, which rejected a U.S. proposal to split chip production 50/50 to reduce America's dependence on supplies from the island. Taiwanese officials said the proposal to shift half of production was off the table and talks centered on lowering tariff barriers. The sharp reaction of Taiwanese politicians, who called the proposal "an act of exploitation and plunder," underscores the difficulty of reaching a compromise. This situation poses risks for the technology sector and could affect the shares of major semiconductor manufacturers such as Taiwan Semiconductor Manufacturing Company (TSMC).

The key factor of uncertainty remains the government shutdown, which has already led to the postponement of the publication of important macroeconomic data. In particular, the weekly data on initial jobless claims will not be published today. Last week's figure was 218,000 and was expected to rise to 223,000 - 230,000, but the shutdown has deprived the markets of this important indicator of the labor market.

No significant corporate reports are scheduled for today.

Futures on US indices show about zero dynamics. We assess the balance of risks as neutral with moderate volatility. We focus on S&P 500 fluctuations in the range of 6650-6750 points (from -0.9% to +0.6% of the previous session's closing level).

- Shares of Kodiak AI (KDK) are up 8.8% after Soros Fund Management disclosed the acquisition of a passive stake in the company. The news of the entry of a large institutional investor was positively received by the market.

- On the background of news about inclusion in the S&P MidCap 400 index quotations of Bentley Systems (BSY) show growth of 5.1%. Index inclusion usually leads to purchases by funds tracking the index, which was the driver of growth.

- Amentum Holdings (AMTM) shares are down 2.6% after announcing the sale of shares for the benefit of existing shareholders. The market reacted negatively to the potential increase in the supply of free float.

- Biogen (BIIB) shares were adding 2% after the close of trading on the back of the Trump administration's announcement of a deal with Pfizer (PFE), but were up only 0.5% at the premarket on October 2. The Most Favored Nation (MFN) agreement was welcomed by the entire healthcare sector as it reduces the risks of imposing tariffs on the industry.

Trading on October 1 on U.S. stock exchanges ended with growth, and the S&P 500 index renewed its historical maximum. The Dow Jones index added 0.09%, the S&P 500 rose 0.34%, the Nasdaq 100 rose 0.49%, and the Russell 2000 rose 0.24%. The key driver of the day was weak ADP employment data, which reinforced expectations of a more dovish Fed stance. The health care sector (XLV: +3.09%) was the leader of the growth, where the rally continued after the news about Pfizer's deal with the US government. The Communications sector (XLC: -1.40%) was the outsider.

The main macroeconomic event of the day was the ADP employment report, which showed an unexpected 32,000 decline in US private sector jobs in September against a forecast of 50,000 growth. The data for August was also revised downward from +54,000 to -3,000, which was the weakest reading since March 2023 and confirmed the cooling trend in the labor market. The cuts mainly affected small and medium-sized enterprises, especially in the leisure, hospitality and business services sectors. Only large companies with more than 500 employees showed growth. Salary dynamics also slowed down, with pay growth for job changers amounting to 6.6% compared to 7.1% in August. Despite the negative nature of the statistics, the market took it positively, as the weak data strengthens expectations of further interest rate cuts by the Fed. In the context of the ongoing US government shutdown, due to which the publication of the official labor market report from the Department of Labor was postponed, the ADP data gained special significance for investors. The publication was another evidence of the weakening labor market after weak JOLTS data a day earlier.

The published index of business activity (ISM) in the manufacturing sector for September came in at 49.1 points, slightly below the consensus forecast of 49.0 but up from August's 48.7. Components of the index pointed to weaker new orders, but also to an improvement in employment and reduced price pressures.

- A Bloomberg report that energy company AES Corp.(AES: +16.8%) is close to a $38 billion takeover deal by BlackRock-owned Global Infrastructure Partners (BLK: -2.13%), a fund owned by BlackRock (BLK: -2.13%), triggered a rally in its shares.

- The announcement of the merger in an all-stock transaction triggered mixed dynamics: the shares of the acquired Veeco Instruments (VECO: +8.7%) rose thanks to the premium, while the buyer, Axcelis Technologies (ACLS: -3.0%), declined in value.

- Shares of Intel (INTC: +7.1%) are rising amid news of talks to bring in its rival Advanced Micro Devices (AMD: +1.37%) as a customer for its manufacturing facilities. According to Semafor, talks are at an early stage.

- Reddit (RDDT: -11.9%) shares fell sharply amid data showing a decline in the number of daily active users after ChatGPT changed the platform's citation algorithms.

This article was AI-translated and verified by a human editor