What Happened Last Week
- Fresh Equity Records: U.S. and international equities shook off the government shutdown to notch new highs.
- Jobs Data Delayed: The shutdown prevented the release of key economic data, including the highly anticipated nonfarm payroll report.
- Healthcare Rally: The beleaguered sector benefited from new administration drug pricing guidelines.
What We’re Watching This Week
- Shutdown Politicking: All eyes are on the Senate for news of a deal to fund the government.
- Treasury Auctions: Bond sales continue during the government’s closure. The Treasury will sell 3, 10, and 30-year paper.
- Consumer Sentiment: In the absence of government data, private sector reports will be more closely watched than usual.
Investment Management Team’s Views
The start of the fourth quarter brought fresh record highs for both domestic and international equity markets, alongside a U.S. government shutdown. The shutdown was well telegraphed and has not slowed the march higher for U.S. stocks as expectations for a deal align with the October 15 paycheck deadline for the mandatory federal employees who are currently working without pay. With the government closed, the gross domestic product (GDP) will likely receive a short-term haircut that will be repaid when funding returns. In the meantime, the government is not collecting or publishing data, leaving both the Fed and the investing community in the dark at a critical time for the labor market. Last Friday’s jobs report was not released, and if the shutdown persists through next weekend, the inflation report for September is also likely to be delayed.
Looking beyond the showdown in Congress, the news flow last week skewed positive. Healthcare, the worst-performing sector over the past year, was the beneficiary of better-than-feared guidance on drug pricing from the Trump administration. The Supreme Court declined to fast-track the Lisa Cook case and will allow her to stay in her seat until the case is heard in January. Additionally, despite some negative headlines about the impact of the trade war on American soybean farmers, the overall tone of the back-and-forth with China remains upbeat ahead of a scheduled meeting between Trump and Xi at the end of the month. Chinese equities have returned over 40% this year, and the emerging market index has more than doubled the S&P 500’s year-to-date advance of about 15% percent.
With the government shutdown limiting access to official data for the near future, investors are likely to turn to consumer surveys, earnings guidance, and speakers from the Fed for cues on the state of the economy and the path of interest rates. Several Fed speakers are scheduled to give updates this week, and the minutes from the September meeting will be released. The University of Michigan Consumer Survey, to be published on Friday, is likely to show that consumers remain wary about the state of the economy, as political and trade uncertainties persist. However, earnings reports are set to begin in earnest next week, and investors will be listening to the banks and airlines for updates on credit health and the picture of overall personal earnings and consumption.