Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Thursday, 10/04” will be posted around 8:30am EDT, Thursday.

THE GIST (“THE WHAT”)

Upbeat economic data, coupled with the easing of fears of a clash between Italy and European Union lifted the S&P 500 index near a striking distance away from the September 21 highs. A major sell-off in Treasury bonds across the board pushed long-term yields to their multi-year highs, supporting a rally in Financials stocks. Rising Energy stocks alongside the soaring oil prices further fueled the day’s gains.
Opening higher, the index registered the day’s high at 2939.86. Swinging between a narrow trading range and maintaining the gains for most part of the day, the index took a sharp leg lower during the latter part of the session as yields pulled back from their highs. Weakness in Utilities and Consumer Staples outweighed gains in Financials and Energy sectors to close the session relatively unchanged at 2925.51, up only 2.08 points and gaining 0.071% over previous session’s close.

THE DETAILS (The “How & Why”):

The ISM non-manufacturing index rose to its highest level to 61.6 in September, as against the expected reading of 58, suggesting that the economy expanded at the fastest pace on record last month. The private sector added 230,000 jobs – solidly above the expected 185,000 jobs. However, ISM manufacturing index slipped to 59.8 from 61.3 in August. 
Meanwhile, in an attempt to avoid a clash with European Union, Italy’s government announced that it plans to reduce its budget-deficit targets to 2.1% of GDP for the year 2020 and to 1.8% of GDP for the year 2021, as against the initially planned target of 2.4% of GDP for both the years. Strong economic data, along with easing of fears of a clash between Italy and European Union triggered a sell-off in Treasury bonds, pushing yields higher. While the 10-year yield climbed to 2011 high, the 30-year yield reached its highest level since 2014.
Financial sector led the early session gains on the back of a steepening yield curve. The sector, however, gave up some of the day’s gains to close the session higher by 0.82%. SVB Financial Group was the top gainer of the session, up 4.70% following a price target hike by Barclays.  
Oil prices continued to trend upwards, rallying to their four-year highs ahead of the Iranian sanctions, despite a sharp increase in U.S. crude inventories by 8 million barrels last week. HollyFrontier Corp., Valero Energy Corp. and Marathon Petroleum Corp. were the best performers of the session, gaining 4.07%, 3.87% and 3.73% respectively, lifting the broader Energy sector higher by 0.82%.
Among the other notable gainers were Industrials, Technology and Communication sectors, up 0.45%, 0.34% and 0.27% respectively. On the other hand, rising yields weighed down on interest-sensitive sectors. Utilities, Real Estate and Consumer Staples were worst performers of the session, sharply down by 1.23%, 0.98% and 1.06%.
Retail stocks extended their previous session slide on concerns of rising cost pressures after Amazon.com Inc. announced a hike in its minimum wages for its employees, dragging the Consumer Discretionary sector lower by 0.43%.
The dollar strengthened on the back of solid economic data, weighing down on metal prices lower. Some of the worst performers of the session were International Paper Co., Sealed Air Corp. and Packaging Corp. of America, down 4.10%, 3.66% and 3.59% respectively, leading the broader Materials sector m
odestly lower by 0.76%.