Stocks were up on Tuesday as the government shutdown got
underway, but were down modestly on the second day of the
shutdown on Wednesday. The Washington impasse has carried into
the third day and stocks are indicated lower at the pre-open
today. Hard to tell how much the budget issue is at play in
moving the market, but it's perhaps reasonable to assume that it
is at least playing some negative role on the margin.
Economic data could explain part, if not all, of the market
reaction, if the shutdown issue is insufficient. After all, we
had a strong read on the nation's factory sector through the
manufacturing ISM index on Tuesday, while the labor market report
from ADP on Wednesday didn't make the grade.
The weekly Jobless Claims data this morning was good enough,
but the key economic read today is the service sector ISM index
coming out a little later. The service sector index reached a
multi-year high last month and another strong reading along the
lines of what we saw from the manufacturing index on Tuesday
would brighten the economic outlook.
Improving economic outlook is good, but it has implications
for the Fed's QE program. The Fed held off on starting the Taper
last month, but the delay is likely only temporary and the Taper
talk will resume once we are past the ongoing Washington
We don't have the non-farm payroll report this Friday because
of the shutdown, there aren't that many top-tier economic reports
on the docket in the coming days and the Q3 earnings season
wouldn't ramp up for another two weeks. But we will get minutes
of the Fed's last meeting next Wednesday that gave us the
surprising non-Taper decision. It will be interesting to see how
close the call actually was as some of the Fed officials
portrayed it in their public statements.
Bottom line, the market is looking at the Washington fight as
nothing more than distracting noise at this stage while keeping
its focus on the underlying economy. Let's hope that it doesn't
become anything more than that.
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