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254K Gold

A blockbuster US jobs report deflates recession worries — and rate cut expectations

Much better than expected job growth in September with a lower unemployment rate, to boot.

10/4/24 8:40AM

The September non-farm payrolls report showed job growth of 254,000 for the month, while economists had expected employment to rise by 150,000. That’s the most jobs added relative to expectations since January.

More good news: the unemployment rate, which was anticipated to hold steady, fell just a bit to 4.1%.

There may be some flies deep in the ointment, but when that many more jobs get added versus expectations and the unemployment rate goes down, traders aren’t going to work hard to find any.

“NFP Friday overwhelms all other employment indicators,” writes Neil Dutta, head of US economics at Renaissance Macro Research. “Thus, the simplest reaction to this morning’s employment report is that labor market conditions are so strong that it makes a 50-basis point rate cut unlikely at any remaining meeting this year and reinforce the Fed’s 25-basis point guidance between now and year-end.”

This was “undeniably good news” for the stock market, Dutta added, as it suggests the Federal Reserve is providing interest rate relief to an economy that is on a more stable footing.

S&P 500 futures jumped in the minutes following the report, extending gains to 0.8%. Russell 2000 futures are soaring, up as much as 1.7%, and the advance for the tech-heavy Nasdaq 100 futures is also in excess of 1%.

Treasury yields also spiked, with the 2-year yield up as much as 17 basis points. That’s its biggest intraday rise since April 10, when the US got its third straight hot CPI inflation report. The odds of a 50-basis point rate cut from the Federal Reserve at its November meeting went from about 30% before this release to below 10%, according to CME’s FedWatch tool.

The US Dollar Spot Index is working on its fifth straight day of gains, its longest winning streak since mid-April, buoyed in recent days by recent geopolitical angst and now these encouraging jobs figures.

Though it’s just one report, these data will be a salve for any worries about the abruptness of the loss of momentum in the US jobs market, where private sector employment growth had been stagnating to the point where we really couldn’t be sure if the economy even added jobs in recent months. The report showed that those more sluggish figures from July and August also enjoyed positive revisions. This is the latest — and most high-profile — example of the recent trend of US data coming in better than anticipated.

I’ve called this the “keep it there” economy, based on monetary officials’ stated desire to maintain the combination of low unemployment, much lower inflation than had prevailed for the prior three years, and solid growth. Between these blockbuster job numbers and recent revisions to US gross domestic income as well as the savings rate, what we’re learning is that “there” is an even better place than previously thought.

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J. Edward Moreno5h

Trump says he has ordered all federal agencies to cease use of Anthropic’s products

President Trump said he has ordered all federal agencies to “IMMEDIATELY CEASE all use of Anthropic’s technology” as the AI startup and the federal government disagree over safety guardrails.

Anthropic has reportedly clashed with the Pentagon after its tools were used to surveil and ultimately detain Venezuela’s president, Nicolás Maduro, which the company says is against its policies. The startup had until today to reach a deal with the government, and the president’s statement suggests an accord wasn’t reached.

“The Leftwing nut jobs at Anthropic have made a DISASTROUS MISTAKE trying to STRONG-ARM the Department of War, and force them to obey their Terms of Service instead of our Constitution,” the president wrote in a Truth Social post. “Their selfishness is putting AMERICAN LIVES at risk, our Troops in danger, and our National Security in JEOPARDY.”

Trump said agencies like the Pentagon will phase out Anthropic’s products over the next six months.

“Anthropic better get their act together, and be helpful during this phase out period, or I will use the Full Power of the Presidency to make them comply, with major civil and criminal consequences to follow,” Trump said.

Tasha Matsumoto

Tech and financials weigh on stocks as credit risks rise

Markets shifted to risk-off mode on hotter-than-expected producer prices and rising credit risks.

Staley Da Bear mascot sits in the endzone during the game between the Chicago Bears and the Green Bay Packers at Soldier Field on September 13, 2015 in Chicago, Illinois.

Matt Phillips7h

Rocket Lab dives on new delay for Neutron

Shares of retail favorite Rocket Lab plunged Friday after the company pushed back plans for the first launch of its bigger Neutron rocket to the fourth quarter of 2026.

Neutron was originally set launch in late 2025. That plan was scrapped in November, with the new target date set broadly for the middle of 2026.

As CEO Peter Beck laid out for Sherwood News in an interview, Neutron is the cornerstone of the money-losing company’s plans to leap to profitability, as it will enable Rocket Lab to enter the market for larger, and more lucrative, payload launches. That market is currently dominated by Elon Musk’s SpaceX.

In January, one of Neutron’s fuel tanks ruptured during a test, necessitating construction of another, as well as some design changes. During the company’s post-earnings conference call last night, Beck told analysts Neutron’s first launch is now expected during the fourth quarter of 2026.

“Neutron is still scheduled to come to market in an incredibly aggressive time frame,” Beck said.

Judging by the stumble for the shares, which by around 1:30 p.m. ET were on track for their worst drop since last fall, investors are not buoyed by those assurances.

Rocket Lab beats expectations on Q4 sales, per-share loss

“Neutron is still scheduled to come to market in an incredibly aggressive time frame,” Beck said.

Judging by the stumble for the shares, which by around 1:30 p.m. ET were on track for their worst drop since last fall, investors are not buoyed by those assurances.

Matt Phillips10h

Dorsey swings the axe at Block in “extreme step” to “replace human labor with compute power”

The market clearly loves it. Jack Dorsey’s decision to axe some 4,000 workers has kicked off what is on track to be Block’s best day in the stock market in over three years.

The takeaways from analysts who have followed the stock — down about 80% from its August 2021 peak — are a bit more nuanced:

Evercore ISI: “Mgmt is explicitly redesigning Block as an ‘AI-native’ organization — embedding automation and efficiency tools across product development, underwriting, operations, and customer interfaces. The financial implications are significant: FY26 Adjusted Operating Income guidance of $3.2B (26% margin) sits materially above mgmt’s prior expectations at the Investor Day just a few months ago, signaling confidence that AI-driven efficiencies can expand margins structurally while sustaining or potentially accelerating product velocity.”

Morgan Stanley: “Cutting 40% of employees (to ~6,000 from ~10,000) encapsulates XYZ’s undertaking that it is now prepared to replace human labor with compute power. We certainly view it as an audacious move by the management, but one that is not without preparation... The reduced headcount should now drive a marked improvement in the gross profit/employee metric, which we expect will justify expanded valuation premium.”

Piper Sandler: “Dorsey characterized the move as a proactive step to make way for AI related productivity gains. The cost saves from lower headcount drive a $500M increase in Block’s Adjusted EBIT guidance for 2026 — now $3.2B vs. $2.7B at investor day just 3 months ago. Bottom line, while the right sizing from XYZ is being well received by investors and should boost short-term profitability, it seems like an extreme step, and we remain skeptical of XYZ’s longer term growth profile.”

Citi: “Several times during the Q&A, the sell side probed management’s comfort with carrying out the major headcount reduction in parallel with more extensive and more effective GenAI use over a roughly two quarter timespan. On the one hand, Block seemed confident in the organization’s ability to adapt and rise to the challenge, but on the other hand, we are aware that a 40% reduction in heads should generate many empty seats. While we believe it more likely for XYZ to succeed here, we think that more reassurance can surface should XYZ continue to do as they plan.”

RBC Capital: “The main question from investors thus far — is this just legacy bloat or real AI enhancements — only time will tell, but it feels like a combination of both... While AI efficiencies no doubt played a key role in a reduction in force of this magnitude, we also believe XYZ was moving in a direction to materially shrink the organization.”

Block soars after announcing 40% workforce cut amid AI push

Evercore ISI: “Mgmt is explicitly redesigning Block as an ‘AI-native’ organization — embedding automation and efficiency tools across product development, underwriting, operations, and customer interfaces. The financial implications are significant: FY26 Adjusted Operating Income guidance of $3.2B (26% margin) sits materially above mgmt’s prior expectations at the Investor Day just a few months ago, signaling confidence that AI-driven efficiencies can expand margins structurally while sustaining or potentially accelerating product velocity.”

Morgan Stanley: “Cutting 40% of employees (to ~6,000 from ~10,000) encapsulates XYZ’s undertaking that it is now prepared to replace human labor with compute power. We certainly view it as an audacious move by the management, but one that is not without preparation... The reduced headcount should now drive a marked improvement in the gross profit/employee metric, which we expect will justify expanded valuation premium.”

Piper Sandler: “Dorsey characterized the move as a proactive step to make way for AI related productivity gains. The cost saves from lower headcount drive a $500M increase in Block’s Adjusted EBIT guidance for 2026 — now $3.2B vs. $2.7B at investor day just 3 months ago. Bottom line, while the right sizing from XYZ is being well received by investors and should boost short-term profitability, it seems like an extreme step, and we remain skeptical of XYZ’s longer term growth profile.”

Citi: “Several times during the Q&A, the sell side probed management’s comfort with carrying out the major headcount reduction in parallel with more extensive and more effective GenAI use over a roughly two quarter timespan. On the one hand, Block seemed confident in the organization’s ability to adapt and rise to the challenge, but on the other hand, we are aware that a 40% reduction in heads should generate many empty seats. While we believe it more likely for XYZ to succeed here, we think that more reassurance can surface should XYZ continue to do as they plan.”

RBC Capital: “The main question from investors thus far — is this just legacy bloat or real AI enhancements — only time will tell, but it feels like a combination of both... While AI efficiencies no doubt played a key role in a reduction in force of this magnitude, we also believe XYZ was moving in a direction to materially shrink the organization.”

Luke Kawa10h

The return of AI credit risk is crushing data center stocks, tipping over other speculative trades in the process

The upstarts participating in the disruptive industry of today as well as the speculative trades that mark the industries of the future are getting crushed on Friday.

It’s a sign of the creeping investor revolt against the capex binge.

The poster child for the move is CoreWeave, which is sinking after reporting Q4 capex figures that were larger than expected along with a 2026 investment budget that also surprised to the upside.

Neoclouds and data center companies like Nebius, IREN, Applied Digital, and Cipher Mining are also getting whacked. So too are the quantum computing companies: IonQ, D-Wave Quantum, Rigetti Computing, and Infleqtion.

What’s the common link between these two things?

Well, as we’ve discussed, speculative stocks tend to have common owners and trade in a relatively correlated fashion. And once again, this simultaneous swoon is coinciding with a perceived escalation in AI credit risk.

These smaller AI companies that have effectively bet their existence on this boom and the willingness of capital markets to fund their expansion plans would have the most to lose if either demand or access to credit shrinks. And, of course, the latter would impact other companies in nascent industries that need capital to grow.

The private credit industry, which has been broadly overweight software companies in their lending activities, is coming under severe pressure as those firms face competition from AI tools.

Block’s job cuts, regardless of any previous mismanagement CEO Jack Dorsey is willing to cop to, will do little to allay fears that software executives may take dramatic actions to grapple with the impacts of this emergent technology.

Meanwhile, the source of that disruption — AI — is also continuing to suck in a lot of capital without much in the way of returns. It feels like the credit market simultaneously doesn’t want to fund software because of the AI disruption threat and doesn’t want to fund upstart AI firms because of the lack of visibility into free cash flow generation. Not great, Bob!

Oracle, the large-cap stock most used as a barometer for AI credit risk, enjoyed a sharp improvement in its perceived creditworthiness after management said on February 1 that about half their funding needs this year would come from equity, rather than fully from debt. Now, its five-year credit default swap spreads are poised to close at their widest level since 2009.

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