OVERVIEW
Morning Update

• Thursday: SPY gained 0.18% to 763.99 and QQQ rose 0.31% to 742.03, with both recovering from substantial early losses.

• Participation: Mid caps outperformed, with MDY gaining 1.02%. Advancing stocks outnumbered decliners on both major exchanges, although new lows remained elevated.

• Premarket: QQQ was 0.56% higher at 746.20 at 7:48 a.m. ET, bringing it back toward the upper end of its recent range.

• Payrolls: Economists expect 90,000 new jobs, unemployment of 4.1% and annual wage growth of 3.2%. The release is due at 8:30 a.m. ET.

• Rates: The 10 year Treasury yield was around 5.24% early this morning, down from Thursday’s peak near 5.34%.

• Oil: Brent fell more than 2% to around $99.74 as European governments discussed releasing emergency fuel and crude inventories.

MARKET ANALYSIS
Yesterday’s Recovery Was Broad Based

The closing index gains understated the buying that appeared during Thursday’s session. MDY recovered from 653.00 to finish at 663.38, close to its high, while IWM recovered from 275.45 to approximately 279. Both had been struggling to retain even modest rebounds, so their response to the early selling was encouraging.

Equal weight participated too. RSP gained 0.47% and QQQE rose 0.53%, each outperforming its cap-weighted counterpart. We would be more comfortable seeing that pattern continue than relying on Nasdaq alone to support the market.

There is still considerable weakness behind those gains. Nasdaq recorded 287 new 52 week lows against 41 new highs on Thursday, showing how many stocks reached fresh lows before the recovery. That is consistent with a market responding to selling pressure, but not yet with a broad uptrend re-establishing itself.

Our interest in mid caps and small caps is therefore conditional on what follows. MDY working through 664 to 667, and IWM recovering the 280.50 to 282 area, would help build on Thursday’s response. We would be less interested in buying either fund if the opening strength fades and prices return to the morning lows.

SPY Has A Lot Less Room Than The Nasdaq

SPY briefly traded below 759 before recovering, leaving the 762 to 764 area as the centre of its recent trading range. Thursday’s high at 765.65 is the nearest level above, followed by the repeated selling around 769 to 770 earlier in the week. A recovery through those areas would put some distance between the index and the lows it has been revisiting.

For new positions, we would prefer to see SPY retain its gains after the employment report rather than react to the opening price alone. Thursday showed that buyers were prepared to respond to weakness. It would be more reassuring if they also remained involved once prices moved higher.

QQQ has retained more of its September advance. Thursday’s low near 736.25 stayed above the 734 to 735 area that supported the previous pullback, while the recent highs around 745 to 748 are now within reach of the premarket quote.

We would not object to Nasdaq spending longer consolidating here. A few quieter sessions would give individual leaders time to establish clearer entries, particularly after the volatility in rates. The less attractive outcome would be repeated attempts to move higher followed by closes near the bottom of the range.

Mid Caps Responded, but Small Caps Still Lag

MDY produced the strongest session among the four benchmark ETFs. It recovered from 653.00 to close at 663.38, near its session high. That was a better response than the recent pattern of modest rebounds followed by further lows.

The first area we would want recovered is approximately 664.60 to 667. Holding progress through those levels would begin rebuilding the short-term range, although the 50 day average remains much higher near 687. Mid caps therefore still need several stronger sessions before we would consider the medium-term trend repaired.

IWM also recovered from its low, rising 0.41% to 279.02 after trading down to 275.45. Its next nearby test is around 280.60 to 282, while the 50 day remains near 293, leaving small caps roughly 4.7% below trend.

We are interested in whether these rebounds can start retaining gains between sessions. Thursday established useful lows to monitor, but we would not buy either fund solely because it has become extended beneath its moving average.

Payrolls Follow a Change in Fed Expectations

The employment report arrives at 8:30 a.m. ET. The expected September gain would represent slower hiring than August’s initially reported 162,000 increase, and economists surveyed by Reuters also anticipate a downward revision to that earlier figure. We will examine the revisions alongside the new month rather than judge the labour market from the September headline alone.

The policy backdrop has changed during the week. Philip Jefferson said on Thursday that the Fed may need more time to assess the economy before making another adjustment. He continued to identify upside inflation risks, however, so his remarks support patience over timing rather than a conclusion that further tightening is unnecessary.

John Williams had made a similar case earlier in the week. By this morning, futures pricing implied approximately a one-quarter probability of an October increase, substantially below the odds seen earlier in the week.

For equities, we would prefer a report consistent with stable employment and contained wage pressure. Strong hiring without accelerating wages would warrant a different interpretation from broad evidence that labour costs are rising faster. Equally, a sharply weaker report could reduce rate expectations while raising questions about company revenues.

August factory orders follow at 10:00 a.m. ET, providing another view of demand after the employment release.

The Bond Recovery Needs to Last

The retreat in the 10 year yield from Thursday’s peak was substantial enough to help equities, but yields remain high after that reversal. A level near 5.24% still represents demanding borrowing costs and meaningful competition for equity capital.

Jefferson specifically acknowledged that yields had risen further since September’s Fed meeting and that policymakers needed to assess what the changing financial backdrop meant for their own decisions. That gives investors a reason to reconsider the pace of future increases without assuming that the entire rise in longer-term yields will reverse.

We would watch whether Treasuries retain their recovery after payrolls. A calmer bond market would give the weaker equity groups more opportunity to rebuild. If yields return quickly toward Thursday’s highs, we would place less confidence in an opening rally in rate-sensitive stocks.

Lower Crude Helps, Fuel Supplies Remain Tight

Oil’s decline follows discussions among European governments about releasing additional diesel and crude inventories. Those discussions are ongoing, rather than a completed release already reaching the market. China’s suspension of refined-fuel exports has added pressure to supplies, and diesel remains a particular concern.

For equities, lower crude is helpful, but we would look for sustained improvement in fuel costs rather than draw too much from Brent moving across $100. Transport companies and manufacturers ultimately pay for delivered products, so the inflation benefit depends on whether relief reaches those markets as well.

Energy remains part of the Fed’s assessment. Jefferson highlighted the possibility that persistent energy-price increases could spread into broader inflation, even while describing longer-term inflation expectations as largely stable.

Nike’s Outlook Shows Limits of the Consumer Recovery

Nike is the clearest negative company reaction this morning, with shares down approximately 10.7% before the open. The company expects a high-single-digit revenue decline in fiscal 2027, a difficult outlook despite signs of progress in parts of

Quarterly revenue fell 4% to $11.2 billion, while gross margin improved to 42.8%. North American growth partly offset declines in Greater China and Europe, the Middle East and Africa. Nike also announced an operating reorganisation and further cost reductions.

We would avoid treating those results as a verdict on the entire consumer economy. The regional differences and Nike’s own product challenges are substantial. The report does show why resilient aggregate spending is not enough to support every consumer stock, particularly where recovery expectations have run ahead of the improvement in sales.