The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Getting nervous.
Like Tuesday, we experienced a risk-off session without a clear catalyst. Overnight futures were flat and they rallied small in the premarket. Asia rallied nicely overnight and Europe off small as we opened. The S&P 500 opened down 5-ish points, hung out for a few minutes, then plunked down more than 30 points by 10 AM. The index spend the middle of the day down 70-90 points and recovered 40 of those points in the afternoon, only to lose them again the in final half-hour. Treasury yields came in significantly across the curve although Fed cutting probabilities changed very little. The market has a 69% probability of a 25-bip December cut priced into the futures market.
Mag 7 led the market lower with NVDA doing the most damage. Mag 7 headlines weren’t scathing so their declines might be more a symptom of the risk-off move than an indication that Mag 7 was a root cause. US labor market concerns were an oft-citied reason for the risk-off move. Announced layoffs were much higher than expected and this refocused market attention on the health of the US labor market.
The labor market, without recently government-published data, is a significant unknown. Markets are wondering if things have degraded since the last publish labor data. Perhaps the risk of a recession is creeping up under our noses. Normally, thinking like this is easily and quickly dismissed. But we haven’t had weekly measurements of the job market since the government shutdown. We haven’t had two full-month measurements either.
Enough time has passed that it is possible for the economy to have changed its path significantly. This may be a low-probability scenario but it is *plausible.* And the longer the shutdown continues, the more fear and supposition will matter in the markets.
We may finally be entering the moment in time where the markets are worrying about the government shutdown. In this particular case, it’s not because the closed government is directly affecting the economy. It’s because the closed government is interfering with the market *assessing* the economy.
Things could get very bumpy.
I’ve previously thought that government-shutdown fears would be a no-brainer dip-buying fantasy opportunity.
Maybe not in this case. If markets are currently worrying about a recession, that is actually en route, the coming dip won’t result in a bounce.
See you tomorrow.
-Mike
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