Key Highlights

  • Guidewire led a broad rally in growth software stocks tied to softer September jobs data.
  • The weak jobs report cut bets on an October Fed rate hike to roughly one in four or less.
  • Several other software names, including Samsara and Zeta Global, rose on the same macro catalyst.
  • Long-term Treasury yields still climbed to their highest since 2002, a lingering headwind for valuations.

Guidewire Software shares jumped on Monday, Oct. 5, leading a rally in growth software stocks as weak jobs data cut bets on another Fed rate hike in October.

Software Catches a Bid

Guidewire Software (NYSE:GWRE) climbed sharply on the S&P MidCap 400 on Monday, rallying at the front of a broad move higher in growth software stocks. The maker of core software for property and casualty insurers did not release company-specific news on the day; the lift came from the macro backdrop.

The gains across the group were tied to Friday's soft September jobs report, which showed US payrolls rising by only 29,000. That weak reading cut bets that the Federal Reserve would raise interest rates again at its October meeting. Traders now see roughly a one-in-four or smaller chance of an October hike, down from better than even a week earlier.

The logic, as one market commentary put it, was that when discount rates stabilize or decline, the present value of those future Earnings increases, explaining why software stocks tend to respond to rate expectations.

A Sector-Wide Lift

Guidewire had plenty of company. Samsara (NYSE:IOT), Zeta Global (NYSE:ZETA), Braze (NASDAQ:BRZE), Tenable (NASDAQ:TENB), Sprout Social (NASDAQ:SPT), Asana (NYSE:ASAN), Appian (NASDAQ:APPN) and Toast (NYSE:TOST) all rose on the same macro catalyst. Samsara also got a boost from Jefferies, which started coverage at Buy with a $50 target.

The latest employment figures signaled a gradual cooling in workforce demand, a shift that eases pressure on the Fed to keep tightening.

Software also drew support from deal news. Schneider Electric (OTC:SBGSY) agreed to buy engineering software maker PTC (NASDAQ:PTC) for $205 a share in cash, sending PTC soaring and lifting peers such as Bentley Systems (NASDAQ:BSY) and Autodesk (NASDAQ:ADSK).

Not every software name rose. Salesforce (NYSE:CRM) fell, finishing as the second-worst Dow stock, and HubSpot (NYSE:HUBS) slipped after Raymond James downgraded it.

The Rate Puzzle

There was a twist. Even as expectations for an October hike faded, long-term Treasury yields kept climbing. The 10-year yield reached its highest level since 2002 on Monday. The ISM services survey showed prices paid at their highest since July 2022, a reminder that Inflation pressures remain.

One market analyst captured the tension, noting Growth Stocks were rallying because Fed expectations had softened, while the Risk-Free Rate against which those valuations are judged remained exceptionally high.

JPMorgan's chief US economist said it would now take a very strong CPI reading to make the October meeting live.

The indexes still finished higher. The Nasdaq Composite rose 286.45 points to a record 27,477.31 and the Nasdaq-100 closed at a record 31,076.44. The S&P 500 gained 51.23 points to 7,773.95, just shy of its record, and the Dow added 90.94 points to 51,267.90. The Russell 2000 rose 14.24 points to 2,847.14.

Mega-cap AI names led, with Nvidia (NASDAQ:NVDA) closing at a record and Microsoft (NASDAQ:MSFT) gaining after an analyst upgrade. Oil fell, with Brent settling at $100.32 even as the Strait of Hormuz stayed effectively closed.

What to Watch Next

For Guidewire and other growth software names, the path of interest rates is the key swing factor. The Fed releases minutes of its September meeting on Wednesday, Oct. 7, at 2 p.m. ET, which could reveal how officials are weighing further hikes. The Fed's next policy meeting is Oct. 27-28, and inflation data before then will matter.

Investors will also look to Guidewire's next Quarterly Report for updates on Demand from insurers. Earnings season gathers pace with PepsiCo (NASDAQ:PEP) on Thursday, Delta Air Lines (NYSE:DAL) on Friday, and big banks from Oct. 13.