Both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) closed down by over 1.5% on Thursday as post-shutdown optimism faded across the market amid heightened economic uncertainty from a lack of federal economic data.
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National Economic Council Director Kevin Hassett said this morning that the Labor Department would publish September’s jobs report by next week, although October’s jobs report will not provide the unemployment rate. October’s Consumer Price Index (CPI) and jobless claims reports, which were scheduled to be released this morning, are still delayed with no clear publication date. Yesterday, White House Press Secretary Karoline Leavitt cautioned that “The Democrats may have permanently damaged the federal statistical system.”
Volatility is back in vogue, with the Volatility Index (VIX) rising by 15% today. The VIX measures expected stock market volatility over the next 30 days based on S&P 500 (SPX) options prices. In addition, CNN’s Fear and Greed Index, calculated using factors like volatility, breadth on the New York Stock Exchange (NYSE), and the 5-day average put/call ratio, fell to “extreme fear” territory.
Falling rate cut odds also contributed to the market weakness after several Fed officials expressed concerns about inflation remaining above the central bank’s target of 2%. That’s because higher interest rates help counter inflation, as they make borrowing money more expensive, reducing upward pressure on prices. Inflation, as measured by the Consumer Price Index (CPI), last tallied at 3%.
“For those keeping score at home, that’s now four Fed presidents with a vote (Collins, Musalem and Goolsbee, plus Schmid who dissented against an October cut) who are not actively agitating for a December rate cut (to put it mildly),” said Wall Street Journal chief economics correspondent Nick Timiraos in an X post.
The odds of a 25 bps rate cut at the December Federal Open Market Committee (FOMC) meeting now appear to be a coin flip, falling to 51.9% compared to 62.9% yesterday and 69.6% a week ago, according to CME’s FedWatch tool.
At the same time, the Fed must also act to support maximum employment, which benefits from lower rates. That creates an issue for the central bank, as the labor market has already shown signs of weakening. Last week, outplacement firm Challenger, Gray & Christmas reported 153,074 job cuts in October, the highest total for the month since 2003.
The S&P 500 (SPX) closed with a 1.66% loss, while the Nasdaq 100 (NDX) fell by 2.05%.
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