Morning in New York: September Began with Weakness in Stocks and Bonds

A daily review and forecast of events in the U.S. stock market by Mikhail Denislov, Deputy Director of Capital Markets Research at Freedom Broker.

The key risk of the session is linked to a new round of escalation between the U.S. and Iran. Trump announced strikes on Iranian targets in response to an attempt to lay sea mines in the Strait of Hormuz and a missile attack on a U.S. base in Jordan. He warned that any further response from Iran would lead to more powerful U.S. strikes. The previous day, WTI rose 5.85% to above $90, while Brent climbed toward the $95 level. The escalation is supporting oil prices and Treasury yields, limiting the tech sector’s potential for recovery.

Iran’s potential response increases the risk of new attacks on tankers and restrictions on shipping. If WTI consolidates above $90, it could keep inflation expectations elevated. Yesterday, the yield on 10-year Treasuries rose by 5 basis points to 4.79%, and today it is testing the January 2025 highs—around 4.81%. Further increases in oil prices could keep yields at high levels, intensifying pressure on growth stocks. The EIA’s report on oil inventories will be released at 10:30 a.m. ET. Yesterday, the API reported a decline of 2.6 million barrels.

Today’s macro calendar highlights the ADP employment report at 08:15 ET, with a consensus estimate of +48,000 following +44,000; another key release will be the Fed’s “Beige Book” two hours before the close of the main trading session. A strong ADP report, combined with high oil prices, will reinforce a hawkish rate outlook, while weak data could support Treasuries. In the Beige Book, investors will focus on comments regarding rising prices.

Before the start of the main trading session, Brown-Forman (BF.B), G-III Apparel (GIII), Ollie's Bargain Outlet (OLLI), and Sprinklr (CXM) will report their earnings. After the market closes, Broadcom (AVGO), Snowflake (SNOW), Hewlett Packard Enterprise (HPE), NetApp (NTAP), and Five Below (FIVE) will report their results. The key corporate event will be Broadcom’s earnings report: Investors will be assessing the visibility of long-term growth in the custom AI accelerators and networking segments, as well as the company’s ability to raise its AI guidance following last quarter’s disappointment. SNOW is also worth watching: following CRM/GTLB/MDB, this is yet another test of the thesis regarding AI monetization within the software sector.

Futures are showing mixed trends with a mildly downward bias. Yields on 10-year US Treasuries are near a three-year high, and the ongoing global bond sell-off is creating an unfavorable backdrop for the technology sector. Numerous references to negative September seasonality in news headlines are also adding to investor jitters. Volatility is expected to be elevated, with a negative risk-reward balance. The S&P 500’s support zone is in the 7,580–7,600 point range. Option positioning suggests that a move below 7,600 will intensify hedging and increase the risk of a further decline.

— Dell Technologies (DELL) is up about 10%. Ahead of the earnings report, investors were debating how sustainable the current cycle of investment in AI infrastructure is. The company partially allayed those concerns: it received a record $60.9 billion in orders for AI servers during the quarter, its backlog reached $95 billion, and its full-year revenue forecast was raised to $192 billion (the consensus was around $173 billion). Another positive sign was the expansion of demand beyond neocloud providers.

— GitLab (GTLB) is growing by 20%. The question was whether generative AI would become a driver of DevSecOps or reduce the need for traditional tools. New orders more than doubled, net ARR grew by nearly 40%, and management cited AI as a sustainable driver of demand for security, governance, and control. The annual revenue forecast is $1.129 billion–$1.133 billion (compared to the expected $1.12 billion).

— Palo Alto Networks (PANW) is down about 2% following an initially positive reaction. The report confirmed strong demand for cybersecurity amid the spread of AI, and the revenue forecast exceeded expectations. However, the free cash flow guidance came in weaker than expected and failed to meet the high bar set by the stock’s strong rally.

— Credo Technology (CRDO) is down about 9%, despite better-than-expected results and guidance. Investors had hoped for a more significant upward revision to guidance amid rapid growth in the AI interconnect and optical businesses. The company maintained its forecast of over $600 million in optical revenue and more than 85% growth in total revenue, but this proved insufficient to meet heightened expectations.

— MongoDB (MDB) is down about 14%, despite a strong quarter and an upward revision to its full-year guidance. The main concern was Atlas’s acceleration amid AI integration and growth in enterprise workloads, but growth remained at 29% for the third consecutive quarter. Management expects growth to slow to about 26% in the current quarter, which was disappointing after the stock’s strong rally.

U.S. indices ended the session lower: the S&P 500 lost 0.71%, the Nasdaq-100 fell 1.29%, and the Russell 2000 dropped 1.23%. The pressure was concentrated in the technology sector, growth stocks, and small-cap companies.

Market breadth deteriorated. On the NYSE, the number of declining stocks exceeded the number of advancing stocks by a factor of 2.33, and on the Nasdaq, by a factor of 2.91. The percentage of S&P 500 components trading above their 50-day moving average fell to 45.5%, the lowest level since May 15. 62.6% of the components remain above their 200-day moving average. The equally weighted RSP index fell 0.82%, compared with a 0.69% decline in the SPY.

The energy sector (XLE) rose 1.27%. The consumer sector fell 1.72%. The software sector lagged behind semiconductors. Apple (AAPL) rose 2.61% and contributed about 18 basis points to the index. The main contributors were Nvidia, with a contribution of about 12 basis points, and Amazon and Microsoft, with about 7 basis points each.

The rise in oil prices was accompanied by a sell-off in bonds. Yields on two-year Treasuries rose by 5 basis points to 4.39%, on 10-year Treasuries by 5 basis points to 4.79%, and on 30-year Treasuries by 3 basis points to 5.27%. The sell-off spread across the entire Treasury yield curve, with the highest absolute yield levels remaining at the long end. The rise in rates was global in nature and intensified pressure on companies with high sensitivity to the cost of capital.

The number of JOLTS job openings in July was 7.271 million, compared with a consensus estimate of 7.313 million. The ISM Manufacturing Index for August was 54.6 points, compared with an expected 55.2. The paid prices component reached 71.1 points, compared with a consensus estimate of 70.8. Fed official Barr stated that the Fed is prepared to support a rate hike if inflation does not continue to slow.

The session was marked by a broad decline amid a pronounced rotation into the energy sector. Certain defensive stocks remained resilient, which, combined with weak market breadth and rising oil prices, points to a shift toward more cautious positioning.

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