Automatic Data Processing, based in Roseland, New Jersey, is a leading cloud-based business services company. The firm is focused on human capital management and has two primary segments: Employer Services, which provides payroll services to companies, and Professional Employer Organization Services, which provides employment administration outsourcing services, including HR, benefits management, and retirement and compliance programs. The shares are a component of the S&P 500. The company has approximately 64,000 employees.

Although institutional investors are responsible for most of the volume in the stock market, the role of the individual investor continues to grow in importance. A long time ago, a mainly union workforce in the U.S. could rely on defined-benefit pensions in retirement; and there was no need to keep an eye on the stock market. Today, most workers put pretax wages into defined contribution plans, with maybe an employer match. With mobility in the workforce, 401(k) plans often become IRAs, and the holder becomes responsible for investment choices. Other factors, such as the meme stock craze and no-commission trades from Robinhood and others, also have driven the increase in individual-investor interest in the market. These so-called small or mom-and-pop investors can be fickle. In aggregate, they usually are at least somewhat bullish, but a brief downtrend can turn bulls into scattering birds. According to weekly data compiled by the American Association of Individual Investors (AAII), over the course of 2024, individual investors have been bullish 45% of the time; bearish 26% of the time; and neutral 29% of the time. The bull-bear spread for 2024 to date has averaged 18.5% bullish. But that spread also shows times when small-investor confidence has wavered. These are mainly periods when stocks reversed off their gains and no one knew when the selling would stop. Heading into April, the bull-bear spread was maybe too complacent in the low-20% area. As the April selloff intensified, the spread averaged below 3% for the last three weeks of the month. The spread also narrowed early in August and early in September. Currently, the bull-bear spread is in single digits, reflecting uncertainty on Fed policy and ahead of the election.

October Resets Economic, Interest Rate Expectations Investors came into October with mixed expectations. Signs of a cooling jobs market in late summer stirred comments that the Fed had remained in restrictive mode too long, putting fragile economic growth at risk. On the upside, investors consoled themselves, the Fed's own dallying likely positioned the central bank to cut rates aggressively into year-end. A strong September nonfarm payrolls report early in October jolted investors out of that mindset. Subsequent data suggested that, far from drifting toward recession, the economy was strengthening slightly coming out of summer and into fall. Investors also had to reassess their expectations for the Fed's rate-cutting schedule through year-end 2024. While the market still appears to anticipate a cumulative 100-basis-points (bps) in rate cuts in 2024, that outcome is no longer a slam-dunk. Jobs Bounce Back Spikes Rates September nonfarm payrolls, reported on 10/4/24, shocked the market and upended expectations that the employment economy was cooling rapidly. The Bureau of Labor Statistics (BLS) reported that the U.S. economy generated 254,000 new jobs in September, well above the Argus forecast of 135,000 and the consensus estimate of 140,000. Given September's blow-out number and upward revisions to August and July, the three-month jobs growth average jumped to 186,000 -- after being closer to 120,000 following August payrolls. The unemployment rate dipped to 4.1%, after coming within a whisker of triggering the Sahm Rule (a usually reliable recession indicator) one month before. Jobs were not only plentiful in September; they continued to generate wage growth above the inflation rate. Average hourly earnings increased 4.0% year over year. Economic Data Churns Along The NFIB's Small Business Optimism Index came in at 91.5, marking 33 consecutive months below the 50-year average of 98. This index has been battered by inflation, and before that by difficulty in finding qualified workers. The Uncertainty Index rose 11 points to 103, the highest reading recorded in this series. Uncertainty, according to the NFIB, makes businesses hesitant to invest in inventory, spend on expansion, and hire new workers. Small businesses are feeling the pain of high financing costs and lingering inflation. The trade deficit, which is reported with an uncommon lag, improved markedly in August to $70.4 billion -- 10% narrower than in July. Exports rose $5.3 billion, and imports declined $3.2 billion from July. All the decrease was in the goods deficit, while the services surplus ticked slightly higher. This represented the lowest monthly trade deficit since March. For 1Q24 and 2Q24, the net exports-imports balance has been overweighted to imports, which is subtractive to GDP. Relative strength in exports could contribute to third-quarter GDP growth. The inflation data released at mid-month was a bit warmer than expected. All-items CPI rose 0.2% month over month and 2.4% year over year. While both missed consensus by one tick, the annual change was the lowest since March 2021, before the onslaught of inflation. The core index rose 3.3% annually, also a tick higher than expected. A day later, the Producer Price Index (PPI) cheered the market with no change on a month-over-month basis. The year-over-year change of 1.8% was a tick higher than expected, but 20 basis points below the Fed's 2% target. Core PPI (less food and energy) was right at the Fed's 2% target. Retail sales provided some good news for the market, rising 0.4% in September from a 0.1% gain in August. Sales were ahead of consensus expectations. Excluding vehicles, September retail sales were up 0.5%; and excluding vehicles and gas, sales were up 0.7%. Vehicle sales are being hurt by sticker shock and high financing costs, while the decline in gas sales mainly reflects a consumer-friendly decline in gasoline costs. Struggles at Boeing have pressured exports, given the importance of aerospace to goods exports. The machinists' strike is just the latest headache for the company, which has faced headwinds in both its commercial and defense & space units. Industrial production decreased 0.3% in September, which was worse than the 0.1% consensus call. The decline was mainly due to the strike at Boeing along with the two major hurricanes that hit the Southeast. Reflecting Boeing, capacity utilization for aerospace & miscellaneous transportation decreased 8.3%. Utilization was 77.5% in September, about 2.2 points below the long-run average. In the months preceding the Fed's first rate cut of the cycle in September, something like optimism returned to the long-depressed housing industry. But rates as noted have spiked higher after first coming down around the September rate cut. The effect of lower rates on housing will be positive. Given the huge number of sub-4% mortgages or homes with no mortgage, however, Argus is not looking for a housing surge like that seen in the pandemic period. September existing home sales fell to a 14-year low, coming in at a seasonally adjusted annual rate (SAAR) of 3.84 million units. Supply has improved, but the currently most-desirable homes -- entry-level for those starting families -- remain in short supply nationwide. Home prices in aggregate are simply too high for many would-be buyers. Sales in September mainly were for deals concluded in the months preceding the Fed's rate cut. But few expect the existing homes market to recover rapidly. New home sales, by contrast, ticked higher to a 738,000 SAAR for September from 709,000 for August. New home sales, which account for about one-sixth of all home sales, were at their highest level in nearly a year and a half. Builders may finally be realizing that the scarcity of affordable starter homes creates an opportunity to stimulate homebuilding. Consumer sentiment hit a six-month high in October, coming at 70.5 from 70.1 in September in response to prospects for interest-rate relief. The University of Michigan Consumer Sentiment Index has been volatile and could easily move down again. But the combination of higher retail sales, new home sales, and sentiment sent a positive message to a market worried about Boeing and the industrial economy. GDP Outlook Higher In mid-October, Argus' Chief Economist Chris Graja, CFA, raised the Argus third-quarter 2024 GDP forecast to 3.0%, from a prior 1.6% estimate. In his multi-input model, the biggest increases were to the services component within Personal Consumption Expenditures (PCE), reflecting recent strength in ISM's Services Purchasing Manager's Index; and higher contributions from equipment and intellectual property within nonresidential fixed investment, a proxy for corporate capital spending. Other growth drivers include the strong September nonfarm payrolls report, which is putting more money in employees' hands. The Atlanta Fed's GDPNow forecast for 3Q24 currently stands at 3.3%. At the end of August, the GDPNow forecast was around 2.0%. It has steadily ticked higher on the strong jobs, retail spending, and new-home sales data. Chris also raised the Argus 4Q24 GDP forecast to 2.3%, from a prior 1.7%. First-quarter GDP grew at 1.6%, while second-quarter GDP rebounded to 3.0% growth. Given net first-half strength and the higher second-half outlook, Argus now looks for GDP growth of 2.5% for all of 2024, raised from a prior 1.9%. Chris retained Argus' forecast for 2.0% GDP growth in 2025. Conclusion Bond yields hit multi-month lows following the Fed's September rate cuts but started ticking higher soon after. The nonfarm payrolls report sent yields spiking higher across the maturity spectrum. Also following the report, the CME's FedWatch tool went from a 30% probability of a 50 bps cut at the November FOMC meeting, to a 10% probability of such an aggressive cut. And the probability of an additional 75-bps cut through year-end was cut in half to 26%, compared with 54% prior to the jobs report. In what has been a volatile month, the S&P 500 was holding a 1%-plus gain for October heading into the final trading week. Questions about the pace of Fed rate cuts, along with an earnings season that is shaping up to be weaker than the second-quarter EPS season, have contributed to the broader uncertainty that has surrounded a too-close-to-call presidential election. The post-election sigh of relief drove strong gains in November and December of 2016 and 2020, and investors are hoping for more of the same to cap a solid 2024 for stocks.

ADP is a provider of payroll and human capital management solutions servicing the full scope of businesses from micro to global enterprises. ADP was established in 1949 and serves over 1 million clients primarily in the United States. ADP's employer services segment offers payroll, human capital management solutions, human resources outsourcing, insurance and retirement services. The smaller but faster-growing professional employer organization segment provides HR outsourcing solutions to small and midsize businesses through a co-employment model.