Uncertainty on Tap as Possible D.C. Shutdown Looms

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. I'm Keith Lansford, and here is Schwab's early look at the markets for Tuesday, September 30th. Growing chances of a government shutdown delaying Friday's jobs report have created uncertainty on Wall Street as the quarter draws to a close. Yesterday's pullback from early gains reflected these concerns, with investors worried that lack of data could prevent another near-term rate cut. A vote on keeping the government open is expected today, according to Senate Majority Leader John Thune.

0:47The Bureau of Labor Statistics, or BLS, said Monday that the September non-farm payrolls report won't be released on time if the government shuts down. Other jobs data would still come out this week, including August job openings today, the ADP September private sector employment report early tomorrow, and the Challenger jobs cuts report early Thursday. That's also when weekly initial jobless claims normally get released, but they could be delayed too. Investors seem concerned about data delays, judging from the S &P 500's sudden 20-point descent Monday when BLS delivered its warning. A lengthy shutdown would conceivably mean no September jobs or inflation data for the Fed to scrutinize before its next meeting, October 28th and 29th.

1:36Without that, it's possible the Fed would be cautious and keep rates unchanged, though nothing is assured. The CME FedWatch tool still prices an 89 % chance of a rate cut in October, but investors might want to keep an eye on that in coming days if a shutdown seems inevitable. Lower chances of a rate cut conceivably could have a bullish near-term impact, tamping down inflation worries associated with a rate-cut regimen and possibly leading to lower yields on the longer end of the curve. Long-term yields are up since mid-September's 25 basis point rate cut, likely on concerns that stronger economic data and heavy fiscal spending by Congress could lead to inflation, especially with more rate cuts seen likely.

2:23Government spending would conceivably fall in any sort of lengthy shutdown. The market still builds in about 80 % odds that the Fed will deliver at least two cuts between now and year-end, according to the CME FedWatch tool. Two isn't necessarily everyone's forecast, however, especially after several Fed policymakers expressed caution last week. We continue to expect one more rate cut by the Fed this year, most likely in December, said Kathy Jones, chief fixed-income strategist at Schwab. Inflation has remained stubbornly above 2 % for more than four years and doesn't show signs of declining anytime soon.

3:05Fed Chair Powell and a few other Fed officials have signaled that they are willing to look through the rise in prices due to tariffs and assume that inflation will eventually slow. However, the market isn't necessarily buying that scenario. The yield curve continues to steepen, a sign that investors are demanding more yield at the long end of the curve to compensate for the risk that inflation continues to stay elevated.

3:33While data may be delayed later this week, investors get a sprinkling of numbers today. Consumer confidence for September is due at 10 a.m. ET, after falling to 97.4 in August from 98.7 in July. Analysts expect 96.0 for September, with the report's expectations and inflation outlooks both likely to get attention. The expectations index fell to 74.8 in August, and anything below 80 historically signals recession, though past isn't precedent. Average 12-month inflation expectations rose to 6.2 % in August, the highest since May, after declining in early summer. Another rise in this category could hurt the Treasury market, signaling that the Fed may have to stay hawkish to manage inflation expectations, which it monitors closely.

4:26Also at 10 a.m., investors brace for the August Job Openings and Labor Turnover Survey, or JOLTS. It's expected to show 7.1 million openings, similar to July's 7.18 million. The quits number will also be eyed for signs of how willing people are to leave old jobs and go to new ones. European data this week is likely to reinforce ideas that inflation and unemployment are low across the Atlantic. As a result, the ECB is likely at or near the end of its rate-cutting cycle, said Michelle Gibley, director of international research at the Schwab Center for Financial Research, referring to the European Central Bank.

5:08Consumer bellwether Nike reports after the close today as the company continues efforts to revive sales. The firm's results could also provide insight on the impact of tariffs against products made in China. Earnings pick up in mid-October but remain light for now, meaning the market could be more responsive to outside developments. Faxet expects S &P 500 earnings growth of 7.9 % in the third quarter, up from 7.3 % in late June, but down from double-digit second-quarter gains. Major indexes manage to hold on to gains Monday and finish higher for the second straight session after the intraday pullback linked to BLS.

5:50NVIDIA climbed 2%, helping the tech sector to a second-place finish behind Consumer Discretionary, which also rose Friday and may be responding to last week's solid August personal spending data. Energy was one of just two sectors to decline, hurt by ideas that OPEC and its allies may vote for another crude production increase later this week. Shares of Electronic Arts climbed another 4.5 % Monday as the video game firm confirmed that it will be acquired in an all-cash deal worth$55 billion. Rumors of a deal sent shares soaring on Friday. Major tech firms climbed the ladder Monday as AI worries that dogged shares last week appeared to dissipate, at least for the day.

6:36Applevin, CoreWeave, Advanced Microdevices, and ASML all advanced, along with NVIDIA. However, bank shares fell as the U.S. 10-year Treasury yield pulled back five basis points to 4.14%. It had climbed to nearly 4.2 percent last week, up about 20 basis points from recent lows on strong U.S. economic data and inflation concerns. Friday's personal consumption expenditures, or PCE data, eased inflation worries a bit. Technically, the S &P 500 index bounced off support at the 20-day moving average near 6 ,570 late last week. That moving average has been a consistent support level since late April.

7:19This speaks to the resiliency of this bull market and the strength of the uptrend, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. The S &P 500 index is up more than 3 % this month, though September is often a tough time for stocks. October is historically a strong month on Wall Street, but it's possible some of the seasonal strength has been pulled ahead.

7:47The Dow Jones Industrial Average added 68.78 points Monday, or 0.15%, to 46 ,316.07. The S &P 500 Index climbed 17.51 points, or 0.26%, to 6 ,661.21. And the NASDAQ Composite gained 107.08 points or 0.48 % to 22 ,591.15. 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. Join us for another update tomorrow.

8:45For important disclosures, see the show notes and schwab.com slash market update podcast.