US Jobs Report Sparks Market Volatility; Dual Stocks Show Mixed Performance

The new trading week opened with significant shifts in US interest rate expectations following a cooler-than-expected jobs report and PCE inflation data. These developments have effectively removed the possibility of an October interest rate hike by the Federal Reserve, just ahead of the third-quarter earnings season, which kicks off with major US banks. The US jobs report fueled a rally on Wall Street, but bond yields and oil prices remain high, continuing to weigh on stock indices. While the Nasdaq reached a new high and the S&P 500 is close to its peak, analysts observe underlying weakness in the stock market. This week's key macroeconomic event will be the release of the Federal Reserve's FOMC meeting minutes from September.

Israeli dual-listed stocks are expected to return from Wall Street with a slight positive arbitrage gap of around 0.2%. Camtek and Ormat are projected to lead with gains exceeding 3%, while Enlight and Elbit Systems are anticipated to rise over 1%. Conversely, Palo Alto Networks, which recently surpassed a NIS 1 trillion market cap on the Tel Aviv Stock Exchange, is expected to drop over 1%. The Tel Aviv Stock Exchange closed the previous week in the red, with the TA-35, TA-90, and TA-125 indices declining by approximately 0.6%, 1.1%, and 0.7% respectively. The technology index bucked the trend, rising about 1.2% due to gains in chip and AI stocks on Wall Street. El Al shares surged over 15% following a Dubai-bound flight incident and reports of resuming routes to Dubai, potentially leading to its inclusion in the TA-35 index for the first time. Israir also saw a rise of over 10%.

Local Israeli stock indices have lagged behind global leaders recently due to a combination of macroeconomic constraints and security and political uncertainty. Regional conflicts and tensions with Iran continue to dampen foreign investor risk appetite. High interest rate differentials with the US, persistent domestic inflation influenced by global input prices and a weaker shekel, prevent the Bank of Israel from resuming interest rate cuts. This also burdens leveraged real estate companies, a significant sector in the local debt and equity markets. Furthermore, the upcoming general elections in Israel hinder the formation of a restrained budget and delay critical fiscal decisions.

In New York, Wall Street ended the week mixed despite Friday's rally. The S&P 500 fell about 0.3%, the Nasdaq climbed about 0.4% to an all-time high, and the Dow Jones weakened by 1.3%. Chip stocks continued their positive momentum, with the SOXX ETF rising 2.8% for its fifth consecutive week of gains. Nvidia and AMD reached new all-time highs. The Friday rally was driven by the jobs report, which significantly lowered market expectations for another October rate hike. Saira Malik of Nuveen anticipates a strong earnings season, providing support for the market.

The US dollar reached a 1.5-year high against a basket of currencies, while the Israeli shekel saw a slight weekly weakening against the dollar, trading at 3.05 shekels. The dollar index (DXY) jumped about 1% to 101.9 points, its highest in about 1.5 years, reflecting expectations of continued US interest rate hikes. Yossi Menashe noted the shekel's relative resilience despite a strong dollar, rising global yields, and energy market tensions. Brent crude oil prices rose about 3.5% to $102 per barrel, while US WTI crude fell 1.4% to $91 per barrel. In crypto markets, Bitcoin held steady around $85,000. Citi analysts significantly raised their 12-month Bitcoin forecast to $113,000, citing stronger crypto activity, supportive macroeconomics, and renewed inflows into crypto ETFs. Citi reiterated its buy recommendation on MicroStrategy, raising its price target to $240.

The September jobs report showed only 29,000 new jobs, significantly below the expected 100,000, and lower than August's 133,000. The unemployment rate rose slightly to 4.2%. Combined with lower-than-expected PCE inflation, market expectations for an October rate hike dropped from 64% to 22%. However, traders are pricing in further rate hikes in December and in 2027. US Treasury yields initially fell on the jobs report but then resumed their climb, remaining at multi-decade highs. Analysts noted that while the job growth was weak, the labor market remains stable, with average job additions over the past three months at 51,000, sufficient to maintain the current unemployment rate. Phil Blancato described the report as neither too hot nor too cold, indicating a stable labor market. Bank of America's sell-side indicator, tracking recommended stock allocations by Wall Street strategists, rose to 57.2% in September, nearing a "sell signal." This contrarian indicator suggests extreme optimism and market crowding, historically leading to below-average S&P 500 returns in the subsequent 12 months. Over 50% of S&P 500 stocks are currently more than 20% below their peaks, indicating a technical bear market for a majority of the index's components.