The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Shutdown non-concern
The US government shut down last night and US equity investor were mildly concerned. The index opened down about 30 points and, by the time another vote to fund the government failed, it recovered. The gains piled up in the afternoon and yields dropped across the curve, to help the cause. Capital flow was elevated at 120%.
It’s a new month, new quarter, and same old environment. The bulls are in charge and they are supremely confident. The government shutdown isn’t as worrisome as it was in the past and investors went from trivially bothered to entirely unconcerned in half a trading day.
The shutdown will prevent the usual monthly nonfarm payrolls data from arriving this Friday. While that data will be important whenever it finally is published, markets seem to be fine and dandy without it. The ADP data (-32k est vs +51k est and -3k prior revised from +54k) released this morning. This has always been a kinda sorta reasonable private market attempt at replicating the nonfarm payrolls data.
Since it’s the only labor game in town this week, it attracted more attention than usual. I don’t think investors are taking the numbers at face value but they are interpreting the health of the labor market. The diagnosis is that the labor market is weakening. By how much and how quickly is unclear. That the Fed will continue to cut rates as a result is very clear.
As of right now, markets are not worried about a recession. If too much weak data shows up, that will be a significant issue.
In the meantime, the narrative is solid. The economy is fine, the labor market is softer, the Fed is cutting, stocks go up.
Until something major happens to change that story, expect the bulls to run and the bears to hide.
See you tomorrow.
-Mike
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