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Chips slide, oil surges, and the TSX bounces back

The day in one line: On Thursday a sell-off in chip stocks pulled the Nasdaq down 1.3%, while the TSX rose 0.3% on a jump in oil. This morning, oil is easing after President Trump said he won't strike Iran before next month's midterms, bond yields are lower, and US futures point higher ahead of Canada's jobs report and Delta's results.

What moved and why

1. Most stocks rose. The index still fell. The S&P 500 lost 36.41 points, or 0.47%, to 7,765.36, its second straight drop after Tuesday's record. The Nasdaq fell 345.35 points, or 1.25%, to 27,193.34. The Dow gained 51.77 points, or 0.10%, to 51,231.64, and the Russell 2000 of smaller companies edged up 0.92 point to 2,794.13. AP noted that losses in big tech outweighed gains in most S&P 500 companies. (See "One thing to understand" below.) The S&P 500 is still up 0.6% for the week and 13.4% for the year. Before dawn this morning, S&P 500 futures were up about 0.4% and Nasdaq 100 futures about 0.9%.

2. A bad day for chips. The Philadelphia Semiconductor Index, a basket of chip stocks, fell as much as 4% before recovering some ground. Arm, Intel and Marvell each lost more than 6%, Micron more than 5%, and Nvidia 2.94%. Part of the trigger, per Yahoo Finance: a Financial Times report that OpenAI's yearly revenue is running about US$20 billion below earlier estimates. Investors have bet heavily that AI spending will keep rising. Any sign of a smaller payoff hits chipmakers first.

3. Oil swings on Iran headlines and a hurricane. November US crude settled up US$3.21 at US$91.49 a barrel on Thursday. Brent, the global benchmark, rose about 4% to around US$104, according to Emirates NBD as quoted by The National. Prices jumped on reports that the US was weighing new strikes on Iran. They eased after Trump said he did not plan to attack Iran before the November 3 midterm elections and called talks "productive." This morning WTI is about US$90–91 and Brent about US$103. Two things still support prices. Attacks on tankers near the Strait of Hormuz keep rising. And Hurricane Isaias is due to hit the US Gulf Coast late Friday or early Saturday; about 63% of Gulf of Mexico oil output has been shut in, or switched off, ahead of the storm.

4. Yields take a breather. The US 10-year Treasury yield rose early Thursday, then fell back to close near 5.23%, down from 5.28% on Wednesday. The 30-year yield ended near 5.61%. Trading Economics says strong demand at Thursday's 30-year bond auction helped. Lower yields give stocks a little breathing room this morning. Futures markets put the odds of a Fed hold on October 28–29 at about 82%, and of a hike in December at about 81% (Trading Economics).

5. Layoffs stay low. First-time claims for US jobless benefits fell by 2,000 to 197,000 in the week ended October 3. That is a low number: few people are being laid off. Continuing claims, which count people still collecting benefits, rose 17,000 to 1.71 million. More people staying on benefits suggests those out of work are taking longer to find a job.

6. Gold up, Bitcoin down. December gold rose US$16.30 to US$4,157.00 an ounce on Thursday. It is higher again this morning, about US$4,190–4,210 depending on the measure, as oil and yields ease. Bitcoin fell about 2% Thursday to around US$81,000, its lowest in about three weeks. Also on Thursday, Palantir rose about 3% after Goldman Sachs raised its rating on the stock.

Canada corner

TSX: a modest bounce after Wednesday's rout. The S&P/TSX Composite rose 103.52 points, or 0.30%, to 35,145.38. That won back about a sixth of Wednesday's 607-point drop. Gainers beat decliners 520 to 449.

Energy led. Higher oil lifted producers: Suncor rose 3.7%, Canadian Natural 3%, Imperial Oil 2.6% and Cenovus 2.5%, according to Trading Economics. Pipelines joined in: TC Energy gained 1.6% and Enbridge 1.1%. Gold miners firmed, with Barrick up 1.8% and Agnico Eagle up 1.7%.

Banks and tech lagged. National Bank fell 1.7%, BMO 1%, RBC 0.7% and CIBC 0.6%, as yields stayed high for much of the day. Shopify slipped 1%, following US tech lower. Celestica, which makes electronics and data-centre hardware, fell 4.42%, one of the TSX's biggest losers on a bad day for chip stocks.

Biggest movers. Richelieu Hardware jumped 11.39% after reporting third-quarter sales up 12.6% to C$562.0 million and profit up 22.4%. International Petroleum rose 4.88% and Fortuna Mining 4.57%, a partial rebound after Wednesday's 9% fall. On the downside, Denison Mines fell 7.92%, MDA Space 6.12% and Celestica 4.42%. I could not confirm the reasons for the Denison and MDA moves.

The loonie. The Canadian dollar closed at 70.22 US cents, up from 70.14 on Wednesday. This morning it trades near C$1.422 per US dollar, a touch stronger. It is still down about 2.8% against the US dollar over the past month, per Trading Economics.

Rates. Canada's 10-year yield eased to about 3.93% on Thursday (Trading Economics). That is about 1.3 percentage points below the US 10-year at 5.23%. That gap is the main reason money keeps flowing toward the US dollar.

Jobs report this morning. Statistics Canada releases September jobs at 8:30 a.m. ET. Economists polled by Reuters expect about 9,200 new jobs, with unemployment rising to 6.5% from 6.4%. Canada lost about 42,000 jobs in August. [JOBS: Bob, please fill in after 8:30 a.m. ET — jobs added or lost, unemployment rate, and the loonie's reaction.]

Note for Monday: It is Canadian Thanksgiving. The TSX is closed, so Monday's issue will have no TSX close.

One thing to understand: why "the market" can fall when most stocks rise

On Thursday, most of the 500 companies in the S&P 500 went up. The index still fell 0.47%. How?

The S&P 500 and the Nasdaq are weighted by market value. Market value is a company's share price times the number of shares. The bigger the company, the more its moves count.

Think of a class average where a few students' grades count 50 times more than everyone else's. If those few have a bad day, the average drops even if most of the class did well.

Today a handful of giant tech and chip companies, such as Nvidia, are worth trillions of dollars each. So a 3% drop in Nvidia can outweigh small gains at hundreds of smaller companies.

Two ways to see what the "typical" stock did:

  1. The Dow is weighted by share price, not size, so it often tells a different story. It rose Thursday.
  2. An equal-weight index gives every company the same say. On days like Thursday, it tends to beat the regular S&P 500.

Neither is better. They answer different questions: "how did the biggest companies do?" versus "how did most companies do?"

On the calendar

Today (Friday, October 9)

Next week

Later this month: Bank of Canada Business Outlook Survey, October 19. Bank of Canada rate decision, October 28. Federal Reserve decision, October 28–29.

Sources

This newsletter is general information, not investment advice.

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