Firm Economy and Looming Government Shutdown Spook the Market

The stock market looks to continue Wednesday’s move lower ahead of Friday’s August PCE Price Index report, the next data point that could influence Fed rate cut expectations. While we tend not to focus on the week-to-week findings of jobless claims, Thursday morning’s data for first-time filings for the week ending September 20 totaled 218,000, less than the 235,000 the market was looking for. At the same time, August orders for non-defense capital goods excluding aircraft, a proxy for business spending, rose by 0.6% compared to July, far stronger than the expected 0.1% decline. 

These data points reaffirm the view that the economy remains on firm footing, but arguably Friday's August Personal Income & Spending data as well as the PCE Price Index prints will have a greater impact on potential GDP revisions and rate-cut expectations.

Meanwhile, the market is feeling the weight of rising uncertainty about a deal to avert a potential government shutdown. Congress being out of session this week isn’t helping matters, and reports indicate the White House budget office has instructed agencies to prepare for mass firings during a possible government shutdown. The government funding deadline is Tuesday night, which means the coming days could be a big game of chicken, and that has the potential to increase anxiety levels in the market.

In the past, government shutdowns have been relatively short-lived, and while we will continue to focus on the longer-term, following the spending that is happening, a shutdown and what follows could bring some opportunity as we move into a seasonally favorable time of year for the market, from October to December.