Daily Brief - Market breadth signals all clear?

TLDR: Stock market bulls can breathe a sigh of relief. Market breadth suggests all is well. 66% of NYSE stocks trade north of their respective 200-day moving averages, which has historically been constructive as rallies with more stocks contributing tend to be rallies that continue upward momentum.

Another popular way to measure bread is the advance decline line: that, too has steadily improved. So if breadth measures are all stable or improving, the market shouldn’t be at risk of peaking?

Actually, the reality is more complicated. There is some mixed evidence that large market peaks form on increasingly narrower breadth. But there is no incontrovertible evidence that would point to any predictive power from widening or narrowing breadth alone.

A big knock on the recent rallies has been the fact an elite (and small) number of tech companies have been increasingly driving all of the gains in US major indexes. Stable or rising breadth makes that argument less compelling but it doesn’t eliminate downside risks.

And Toggle Leading indicator - correctly - turned bearish but only briefly for a small correction. The majority of insights coming in across the 40,000 assets it is following remain neutral or positive.

Market Movers: If US 10Y yields cross 4%

Here are the top 3 and bottom 3 performing US sectors, according to their 1-month returns, based on previous instances when US 10Y yields rose:

Top 3 Performing Sectors:

1. S&P Consumer Discretionary: +1.84%
2. S&P Financials: +0.81%
3. S&P Industrials: +0.52%

Bottom 3 Performing Sectors:

1. S&P Technology: -0.78%
2. S&P Utilities: -1.00%
3. S&P Health Care: -2.08%

Earnings Spotlight: US economy adds a whopping 254K jobs

The U.S. job market exceeded expectations in September, with employers adding 254,000 jobs, significantly higher than the 140,000 anticipated by economists.

This robust growth, alongside a drop in the unemployment rate to 4.1%, underscores the labor market's continued strength. Key sectors such as health care, government, and construction maintained their momentum, while leisure and hospitality, particularly restaurants and bars, saw a surprising surge, contributing 78,000 jobs.

This stronger-than-expected report boosts the Federal Reserve's flexibility in decision-making regarding potential interest rate cuts, with many analysts suggesting they may either cut rates or pause to reassess in December. The positive employment figures also spurred gains in stock futures and increased Treasury yields.