It was another very good day on Wall Street with the Dow reaching a +175 by 2 p.m. on some very nice economic data including jobs jumping by 230,000 and the services sector hitting a 21 year high.  But then the index took a big dive again, maybe because of fears of more interest rate hikes beyond the one expected for December which today got rated at nearly 80 percent.  Nonetheless, the S&P came within striking distance of a new record and the Dow enjoyed its second consecutive all-time high despite the afternoon tumble.  Volume was not included in today’s report. 

wed  OCTOBER 3, 2018 / 6:36 pm 

Financials lift Wall Street, but rate worry caps gains

Chuck Mikolajczak

DJ:  26,828.39  +54.45       NAS:  8,025.09  +25.54         S&P:  2,925.51  +2.08       10/3

NEW YORK (Reuters) - Wall Street advanced on Wednesday and the Dow Jones Industrial Average closed at a record for a second day, after U.S. economic data fueled a rise in Treasury yields, lifting financial stocks.  The ADP National Employment Report showed private payrolls jumped by 230,000 jobs in September, the largest gain since February. A report from the Institute for Supply Management showed services sector activity hit a 21-year high in September.

The data fed expectations for a U.S. Federal Reserve interest rate hike in December. The yield on the 10-year U.S. Treasury note US10YT=RR touched its highest level in over seven years at 3.179 percent and the two-year yield US2YT=RR hit its highest in more than a decade.  Rising yields boosted financial shares, putting the S&P 500 within striking distance of a record. Financials were also aided by signs Italy would cut its budget deficit and lower its debt, easing a concern that had pressured global stock markets.  Financials .SPSY, which have underperformed the broader market this year, rose 0.81 percent, their biggest daily gain since Sept. 19.

Still, major indexes closed well off their earlier highs as the data and recent comments from Fed officials raised concerns the central bank may hike rates too aggressively.  “Just the recognition of the Fed saying the economy is good, that means they are not going to slow down any time soon the rate of rate increases,” said Mike Baele at managing director at U.S. Bank Private Client Wealth Management in Portland, Oregon.  “If we were to think about risks to risk assets, rate increases would certainly be at the top of that list. The old adage is the Fed raises rates until something breaks.”

The Dow Jones Industrial Average .DJI rose 54.45 points, or 0.2 percent, to 26,828.39, the S&P 500 .SPX gained 2.08 points, or 0.07 percent, to 2,925.51 and the Nasdaq Composite .IXIC added 25.54 points, or 0.32 percent, to 8,025.09. 

Traders now see a 79.7 percent chance of a 25 basis point hike at the December meeting of the Fed, up from 78.5 percent a day ago, according to CME’s FedWatch tool.  Utilities .SPLRCU, off 1.23 percent and real estate .SPLRCR, down 0.98 percent, were leading decliners, as higher bond yields made shares of high-dividend paying companies less attractive.

General Motors (GM.N) rose 2.1 percent after Honda Motor (7267.T) said it would invest $2 billion over 12 years in the U.S. carmaker’s Cruise self-driving unit.  Michael Kors (KORS.N) rose 3.0 percent after Citi upgraded the stock on expectations its recent purchase of Italian fashion house Versace would boost performance. 

Declining issues outnumbered advancing ones on the NYSE by a 1.04-to-1 ratio; on Nasdaq, a 1.63-to-1 ratio favored advancers.  The S&P 500 posted 29 new 52-week highs and 14 new lows; the Nasdaq Composite recorded 38 new highs and 67 new lows. 

Note: No volume data published in today’s report but, per BATS, volume was 5.0 billion which seems way low so I’m not sure BATS can be trusted today.  Perhaps they have changed their metrics.