New Quarter Begins with Focus on D.C., Jobs 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 Wednesday, October 1st. A potential U.S. government shutdown looms with no deal as the recording of this podcast. There's anxiety that Friday's jobs report could be delayed, but U.S. markets have inflinched this week. Major indexes climb Tuesday to finish not far from recent record highs, while Treasury yields treaded water. The Bureau of Labor Statistics, or BLS, said it wouldn't release the September non-farm payrolls report if the government closes, and those numbers are critical for the Federal Reserve as it prepares for its October 28th and 29th rate meeting.

0:56A quick shutdown that sets back the report a few days might not move the needle, but a long one that also threatens release of mid-month inflation data might keep the Fed on the sidelines, unwilling to cut rates without close scrutiny, or in the worst case, any scrutiny of the data. Uncertainty could mount if more data grows imperiled and fears rise about dysfunction in Washington. If a shutdown occurs, the longer it takes to reach a deal, the more likely it is to weigh on sentiment, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. Beyond the data and Fed impact, a prolonged shutdown could affect Treasury yields and the dollar.

1:37Ironically, yields may fall if investors believe a shutdown could make a significant dent in Washington spending, possibly easing deficit concerns. Worries that a shutdown could hurt economic growth might also weigh on yields. The reason rise in the Treasury yield curve, with long-term yields outpacing short-term ones, partly reflects concerns about U.S. fiscal responsibility after passage of the Republican budget bill earlier this summer raised the scepter of bigger deficits. The dollar edged lower ahead of Tuesday's midnight shutdown deadline and could be hurt more if a long D.C. standoff raises concerns about the U.S.

2:16debt rating. During shutdowns dating back to the 1970s, market reaction has been mixed, but the S &P 500 has actually risen during the last five shutdowns, said Michael Townsend, Managing Director of Legal and Government Affairs at Schwa. Some analysts believe that the markets could react more negatively to a shutdown this year because of underlying economic concerns and foreign investor worries about government dysfunction in the U.S. A full government shutdown last occurred in 2013. The one in 2018-19 happened after some agencies like the Pentagon were already funded. There is a sense in Washington that this could be a long one, Townsend said.

2:58President Trump has threatened to fire thousands of federal employees in the event of a government closure. If this happens, it could hit consumer spending that's underpinned recent economic and stock market strength.

3:13Beyond shutdown talk, the September ISM Manufacturing Index is due at 10 a.m. Eastern Time. The index has been below 50 percent, or the level needed for expansion since March. Analysts expect a headline September reading of 49.2 % according to the consensus from briefing.com. That's up from 48.7 % in August. In Data Tuesday, the Job Openings and Labor Turnover Survey, or JOLTS, report for August rose by 19 ,000 from July to 7.227 million. July got upwardly revised to 7.208 million. Both numbers were on the low end of the post-pandemic range, and new job openings continued to be dominated by services sectors like leisure and hospitality and healthcare and social assistance.

4:04Openings fell sharply in construction and the federal government. Also Tuesday, the Conference Board's September consumer confidence data came in below expectations at 94.2, down from 97.8 in August. Analysts had expected 96.0. But on a more positive note, average 12-month inflation expectations fell to 5.8 % from 6.2 % in August. Investors heard a parade of Fed speakers this week, many of whom expressed caution about cutting rates any further. Even so, the CME FedWatch tool now plugs in a 96 % chance of a rate cut later this month, up from less than 90 % heading into the week. Chances of two cuts this year rose to 76 % from below 70%.

4:52The Atlanta Fed's GDP Now tool predicts seasonally adjusted annual third quarter gross domestic product, or GDP, growth of 3.9%. The indicator gets an update today. The September ADP private employment report is due about an hour before the open. It's not necessarily correlated with government data due Friday, but can have a market impact, particularly if it's weak. The August figure was 54 ,000, but briefing.com consensus for September is 40 ,000. Consumer bellwether Nike reported after the close Tuesday beating analysts' estimates. Shares initially popped 3 % in post-market trading. On Tuesday, major indexes displayed more resilience as investors shook off shutdown fears.

5:41Stocks tacked on more strength late in the session, with the S &P 500 index closing near its intraday high and not far off the all-time high settlement of 6 ,693 reached last week. AI giant NVIDIA led the parade for tech, rising more than 2.5 % to a new all-time high above$187 intraday, as investors seemed less concerned about some of the competition worries that hurt shares last week. However, Intel, one of last week's top tech performers, continued to pair those gains Tuesday. The small-cap Russell 2000 index, which recently made a new all-time high, dipped slightly on Tuesday. If yields remain stable to lower, the Russell 2000 can likely get some traction, but investors are once bitten twice shy with multiple head fakes from the Russell 2000 over the past three years, Schwab-Peterson said.

6:36CoreWeave soared more than 11 % Tuesday as the company announced a deal to supply meta-platforms with as much as$14 billion worth of computing power, Bloomberg reported. Spotify dropped 4 % after announcing the CEO Daniel Ek is stepping down. The stock also got downgraded by Goldman Sachs to neutral from buy. Shares increasingly price in Spotify's forward growth at current levels, Goldman said. Healthcare stocks Pfizer and Eli Lilly surged more than 6 % and more than 5 % respectively after the Trump administration announced the launch of a program to sell drugs directly to consumers. The SIBO Volatility Index, or VIX, edged up Monday as investors appear to be positioning for more near-term volatility in response to uncertainty over the possible shutdown, but VIX eased slightly on Tuesday.

7:31The 10-year U.S. Treasury note yield rose by a basis point to 4.15%, finishing September down 8 basis points. The 30-year bond yield fell 19 basis points in September. The weak consumer confidence report likely helped limit Tuesday's yield gains, and short-term yields fell. U.S. government bond prices rose 1.5 % during the third quarter, according to Bloomberg, and are up more than 5 % through the first three quarters, the best year since 2020. Several important Treasury auctions are on next week's calendar, assuming the shutdown doesn't affect them.

8:08For the S &P 500, this was the best September since 2010 and its fifth straight monthly gain, Perrins noted. The Dow Jones Industrial Average added 81.82 points Tuesday, or 0.18%, to 46 ,397.89. The S &P 500 index climbed 27.25 points or 0.41 % to 6 ,688.46, and the NASDAQ composite gained 68.85 points or 0.31 % to 22 ,660.01. This has been the Schwab Market Update podcast. To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show.

9:05Join us for another update tomorrow.

9:13For important disclosures, see the show notes and schwab.com slash market update podcast.