Financial markets are entering a new tense week. Against the backdrop of a possible US government shutdown, three events are coinciding at once — the countdown to a potential shutdown, the end of the third quarter, and the release of September employment statistics.
Last week, the main indices barely changed, despite new tariffs announced by Donald Trump on Thursday evening. But now investors are facing a series of events with much more serious risks.
On Tuesday, the third quarter officially ends, during which the Dow, S&P 500, and Nasdaq hit new all-time highs. At the same time, Washington is approaching the budget deadline: if an agreement is not reached, the government will shut down as early as Wednesday afternoon.
Focus shifts to employment data
Wall Street economists expect an increase of about 43,000 nonfarm jobs in September. The unemployment rate, according to consensus, will remain at 4.3%. Oxford Economics has a higher forecast, up to 85,000 new positions. According to their team, such an increase would confirm the labor market’s resilience and give the Fed grounds to maintain policy parameters at the October meeting.
The regulator does not rule out delays in the publication of statistics. Last week, Federal Reserve Board member Lisa Cook continued legal proceedings with the Trump administration over the 2021 mortgage case. In support of Cook, former Fed chairs Ben Bernanke and Janet Yellen sent a joint appeal to the Supreme Court. The situation adds uncertainty around the data release calendar.
There is also a practical risk for employment. According to Oxford Economics, in the event of a government shutdown, about 40% of federal employees are usually sent on forced leave with subsequent compensation. Now the White House has signaled agencies to prepare for actual layoffs, not just a temporary suspension, which carries harsher consequences for the labor market.
The economic calendar and Wall Street expectations add tension to the market
This week, traders’ attention will be focused on a packed calendar of macroeconomic releases.
On Monday, data on industrial business activity from the Federal Reserve Bank of Dallas will be released.
On Tuesday, several reports are expected: the FHFA housing price index for July, the September Chicago PMI business activity index, the number of JOLTS job openings for August, the Conference Board consumer confidence index, and service sector data from the Dallas Fed.
On Wednesday, the focus will be on MBA mortgage application statistics, the ADP private sector employment report, PMI indices for manufacturing from S&P Global and ISM, construction spending data for August, and Wards car sales for September.
On Thursday, Challenger job cuts data, weekly unemployment claims statistics, the August factory orders report, and final durable goods orders data will be released.
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The key day is Friday. If the government is not shut down, nonfarm payrolls data, the unemployment rate, average hourly earnings dynamics (month-on-month and year-on-year), as well as final PMI indices for the services sector from S&P Global and ISM will be released.
On the corporate front, the week is relatively quiet. On Monday, Carnival Corporation, Jefferies, Vail Resorts, and Diginex will report. On Tuesday, Paychex and Lamb Weston will publish results. The most notable release is expected on Wednesday — Nike earnings.
No significant corporate reports are expected on Thursday and Friday: major banks will start releasing third-quarter results only in mid-October. This means the market will have to go through political and economic turbulence without support from fresh corporate data.
Despite the uncertainty, the S&P 500 index ended Friday’s session above 6,600. Investors still remember the shock from Donald Trump’s “Liberation Day” statements at the start of the year, but those losses were recovered in just a month.
Meanwhile, volatility has noticeably decreased: the VIX index fell from above 50 in April to the middle of the range by Friday. Since July 1, it has only risen above 20 once. After the May pullback, the S&P 500 returned to growth and calmly updated all-time highs.
According to Robert Harlow, deputy head of global multi-asset research at T. Rowe, hedge funds are actively turning to options, especially in short-term trading.
‘If you are a hedge fund that is not set up to work with all types of option structures, you just go in and out,’ he explained.
