Job Cuts News Eyed as Shutdown Delays Claims Data

0:05Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.

0:17I'm Keith Lansford, and here is Schwab's early look at the markets for Thursday, October 2nd. Thursday won't feel normal to market veterans, with the government's shutdown canceling initial weekly jobless claims data. Wall Street has taken the D.C. stalemate in stride so far, with the broader market hitting record highs yesterday in part on hopes that a shutdown might be relatively short. The question is how investors might feel if the situation isn't resolved quickly and key reports like tomorrow's September jobs data aren't available to trade on. The shutdown began Wednesday and hasn't been long enough to cause a sector impact.

0:56If it persists, consider watching activity in industries tied to federal contracts such as defense, construction, and technology services as they may face delayed payments. Industries such as tourism, airlines, and regional economies with large federal workforces would likely feel a sharper hit, too, if there's no quick agreement. The Bureau of Labor Statistics, or BLS, won't release Friday's September non-farm payrolls report if the government stays closed tomorrow. That report is critical for the Federal Reserve as it approaches its October 28th and 29th rate meeting. But unless the shutdown lasts more than a few days, the data will likely be available soon, and this may look like a bump in the road for Wall Street and the Fed.

1:41The Fed is still functioning during the shutdown, so its rate-setting meeting is expected to take place as scheduled. October's meeting was already shaping up as a difficult decision on whether to continue rate-cutting, said Michael Townsend, Managing Director of Legislative and Regulatory Affairs at Schwab. A lack of critical data would make the Fed's decision-making process even tougher. The shutdown could impose an additional job threat as President Trump has threatened to fire, rather than furlough, thousands of federal employees during the closure. If this happens, it could hit consumer spending that's underpinned recent economic strength.

2:18It could also mean more federal job losses added to this year's growing tally. Vice President Vance said no final decisions on layoffs have been made, CNBC reported. Wednesday's data kept labor worries front and center, initially hurting major indexes before they rebounded. ADP private sector employment fell by 32 ,000 in September, well below consensus of 40 ,000 jobs added, and likely to spur fresh concern about the labor picture. ADP also sliced its August report to down 3 ,000 from being up 54 ,000. With no Friday government data, this will take on added significance, said Kathy Jones, chief fixed income strategist at Schwab, who called the ADP data much weaker than expected.

3:06One concern is that if employment continues to weaken and the government is shut, the Fed won't be able to cut rates without data, exacerbating the problem. After several disappointing jobs reports from both the government and the ADP, investors might be wondering how much the weak data reflects lack of employer demand versus lack of people to hire. The administration's crackdown on immigration could mean fewer available workers. Strong consumer spending and economic growth, along with stubborn inflation, work against the argument of a slower economy dragging down job demand. The Atlanta Fed's GDP Now tool got updated Wednesday to 3.8 percent, down from its previous estimate of 3.9 percent for a seasonally adjusted annual third-quarter gross domestic product growth, though short shutdowns haven't had much impact on economic growth historically.

4:00The big unknown is how long the shutdown will last, Townsend said. There is a sense in Washington that this could be a long one. If this is a week or 10 days, there probably won't be much impact, but if it's a month or longer, and that's the worry right now in Washington, it could start to have a broader impact on the economy. Wednesday's September Remember, ISM manufacturing PMI was sluggish and below expectations at 49.1%. Analysts had expected a headline reading of 49.2%, according to Briefing.com, up from 48.7 % in August. The CME FedWatch tool prices in nearly a 100 % chance of a rate cut this month.

4:41Chances of two cuts before year-end rose to 87 % by late Wednesday, well above the 70 % level seen late last week. Treasury yields appeared to take a hint from rising rate cut hopes Wednesday, falling across the curve, but with the sharpest declines in short-term yields more sensitive to Fed policy. The benchmark 10-year yield fell four basis points to 4.11%, down seven basis points from Friday after rising eight basis points last week. Worries about the shutdown and related job losses, along with the weak ISM and ADP data, likely weighed. Next week features several key Treasury auctions that may provide direction after a lull, assuming they aren't affected by the shutdown.

5:28Investors await today's September Challenger jobs cut data before the open. With federal data unavailable, reports like the Challenger and ADP will take on added importance. Consensus puts Challenger job cuts at 150 ,000, up sharply from 86 ,000 the prior month. September a year ago saw just 72 ,000 cuts. Pharmaceutical, financial, and tech led cuts in August. Checking corporate news, Tesla is expected to release its third-quarter vehicle deliveries data. It's the last quarter featuring expiring U.S. EV tax credits, which could help boost numbers, Reuters noted. Wall Street expects deliveries of approximately 441 ,500 vehicles, about 6 % lower than the same quarter a year ago.

6:16After shaking off threats of a government shutdown the last two days, Wall Street flinched Wednesday when the shutdown began but quickly regained its strength. Treasury yields and the dollar slipped, but so did volatility. The soft ADP data initially put pressure on equities, but falling yields and rising rate-cut hopes appeared to give the market a boost later. Stocks might have also gotten support from the Supreme Court, allowing Fed Governor Lisa Cook to remain in her job while the court case around President Trump's attempt to fire her proceeds. This may ease worries about Fed independence and how Cook's potential exit might have affected the next meeting.

6:56Healthcare, often seen as a defensive sector, with fortunes less tied to the AI story led gains Wednesday and has been on roll. The 3 % gain was triple that of any other sector, while 5 of 11 S &P 500 sectors declined. Materials appeared to come under pressure from news of the European Union considering higher steel tariffs. Two of the three Magnificent Seven-dominated sectors, Infotech and Consumer Discretionary, had solid outings. Health stocks, which are in the bottom three sectors of the year, dramatically behind the overall market, appear to be gaining for several reasons, including strong trial results from Pfizer, the Trump administration's launch of a government-run, direct-to-consumer platform aimed at reducing drug costs, and biotech strength related to lower rates that could reduce costs, Briefing.com noted.

7:48Also, lower rates might encourage more mergers in the space. Big health care gainers yesterday included Pfizer, Eli Lilly, Merck, Biogen, Amgen, and Regeneron. Chip stocks also performed well Wednesday, led by a 7 % gain in Intel. As CNBC and other news outlets reported, it's in talks to add advanced microdevices as a customer. The Dow Jones Industrial Average gained 43.21 points Wednesday, or 0.09%, to 46 ,441.10. The S &P 500 Index climbed 22.74 points, or 0.34%, to 6 ,711.20. And the Nasdaq Composite added 95.15 points, or 0.42%, to 22 ,755.16. This has been the Schwab Market Update podcast.

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