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MORE BEARS GROWLING - AAII (1311 ET/1711 GMT)

Pessimism that stocks will fall over the next-six month rose for the third straight week to a five-month high, according to the latest AAII Sentiment Survey.

Bearish sentiment, or expectations that stock prices will fall over the next six months, rose 0.6 percentage points to 41.6%, said AAII, putting it at the highest level since May 4 and the fifth time in seven weeks it is above the historical average of 31.0%.

However, bullish sentiment, or expectations that stocks will rise over the next six months, also rose, rebounding by 2.3 percentage points to 30.1%, although still below its historical average of 37.5% for the seventh time in eight weeks.

The bull-bear spread rebounded by 1.7 percentage points to 11.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined by 2.9 percentage points to 28.3%, below its 31.5% historical average for the second time in eight weeks.

(Chuck Mikolajczak)

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PAYROLLS DEEP DIVE: CAREFUL, THAT FIRST STEP IS A DOOZY (1135 ET/1535 GMT)

The September employment report arrived on Friday like a meteor, blasting past expectations and delivering a corker of a topline surprise.

The U.S. economy added 336,000 jobs in September USNFAR=ECI, nearly double the 170,000 consensus.

The blowout number stands on the shoulders of July and August prints that were revised sharply higher, to 236,000 and 227,000, respectively, for a grand total of 119,000 in upward revisions.

The topline number fairly shouts it from the mountaintop: the labor market is solid and can withstand the Fed's restrictive policy rate.

"The labor market is not going to cool with job growth continuing at this rapid pace," writes Brian Coulton, chief economist at Fitch. "This will keep upward pressure on wages, making it more likely that the Fed has further to go in raising interest rates."

Digging beneath the headline, 89% of the 263,000 private sector job adds came from the services sector.

Related factoid: total private payrolls are now 3.5% higher than in February 2020, before the pandemic shutdowns.

Government jobs accounted for nearly 22% of total job adds, mostly on the state and local levels, and likely a back-to-school phenomenon.

But put into perspective, the actual number lands to the north of expectations five times out of six, and the size of the September surprise wasn't even the biggest this year.

That prize goes to January, which landed 287,000 jobs north of analyst estimates:

Aside from payrolls, the most closely-watched element of the Labor Department's report was average hourly wage growth.

Those numbers were cooler than anticipated, holding steady at 0.2% on a monthly basis and decelerating to 4.2% year-on-year.

This marks the first major September inflation indicator, to be followed next week by CPI and PPI data. And if wage growth sets the trend - as it often does - it could help keep the Fed's finger away from the rate hike button.

Even so, every metric continues to ride well above the central bank's 2% annual target.

"Earnings growth continues to be too strong for the Fed, although most measures of wage growth are moving in the right direction," says Nancy Vanden Houten, lead U.S. economist at Oxford Economics.

Beyond the jumbo payrolls surprise and cooler than expected wage data, the report was actually rather ho-hum.

Both the unemployment rate and the labor market participation rate moved sideways, holding firm at 3.8% and 62.8%, respectively.

This would suggest that those entering or re-entering the jobs market are having a fairly easy go of landing a gig.

Further signs of labor market health can be found in a breakdown of the unemployed by duration.

The freshly jobless and long-term unemployed saw their slices of the total pie shrink, and the disbursement has essentially returned to the pre-pandemic "normal."

When the newly-canned shared of total jobless shrinks, it indicates employers' growing reluctance to hand out pink slips. The dwindling pie slice at the long end of the unemployment curve suggests the jobless are finding new gigs faster.

But breaking down unemployment by race/ethnicity provides a gloomier snapshot.

White joblessness held firm at 3.4% - 40 basis points below the topline - while unemployment among Black Americans jumped 40 basis points to 5.7%, or 1.9 percentage points above the national average.

With this, the White/Black jobless gap widened to 2.3 percentage points.

Taken together, the September jobs report has increased the probability of another rate increase at the conclusion of next week's Fed meeting.

At last glance, financial markets have priced in a 30.6% chance of that happening, up from 20.1% a day earlier, according to CME's FedWatch tool.

(Stephen Culp)

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HIGH RATES MAY NOT BE THE DEATH KNELL FOR STOCKS (1102 ET/1502 GMT)

A inflation continues to slowly ebb in a rising rate environment, stocks may not be subject to sharp declines, according to a recent post by Jeffrey Buchbinder, chief equity strategist at LPL Financial in Boston.

Buchbinder notes that during the 1970s we saw runaway inflation, with CPI reaching a high of 11.7% in February 1978. During that time, the correlation between bond yields was inverted, as higher yields used to combat inflation weighed on stock returns, with the S&P 500 .SPX showing an average annual return of 1.6% between 1970 to 1980 and the yield on the 10-year U.S. Treasury topped 10%.

As inflation began to soften in the first half of the 1980's, the same negative correlation remained but the roles were reversed as equities saw sharp growth, bond yields started to decline and core CPI fell below 4% in May 1983.

From that point until the end of the decade, the S&P 500 appreciated at an average annual rate of 12.15%, according to Buchbinder.

This relationship remained intact during the 1990s as yields continued to fall, inflation normalized and equity markets showed strength.

Buchbinder said, "as we move into a new regime of lower inflation, we should look to concerted changes in stock prices relative to bond yields," because rising yields can do significant damage to stocks while inflation is high.

But when inflation cools and yields move lower stocks can do well. And as inflation currently continues to decelerate, "the high interest rates we’re currently experiencing don’t necessarily spell doom for stocks."

(Chuck Mikolajczak)

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WALL ST POISED FOR LOWER OPEN AFTER HOT JOBS DATA (0845 ET/1245 GMT)

U.S. stock index futures were pointing towards a lower open to close out the trading week, sharply erasing modest gains in the wake of a stronger-than-expected payrolls report as Treasury yields moved higher in anticipation of the Federal Reserve maintaining a tight monetary policy.

Nonfarm payrolls for September came in at 336,000, much stronger than the 170,000 estimate of economists polled by Reuters. The unemployment rate of 3.8% was slightly higher than the 3.7% estimate.

"At least wage gains came in tepid. The rest was hot," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

"The revisions to back months is shocking, showing the first print is grossly unreliable. If the Fed is data dependent, they’re flying with a broken instrument panel."

Below is your premarket snapshot:

(Chuck Mikolajczak)

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