Stocks, Bonds Shaken By September Turbulence Ahead Of Government Shutdown Deadline: The Week In The Markets

The U.S. stock market has weathered its toughest month of the year, with September adhering to its typical negative seasonality in terms of risk sentiment. Both the SPDR S&P 500 ETF Trust SPY and the Nasdaq-related Invesco QQQ Trust QQQ closed 5% lower this month.

Bonds Sell Off: Treasury yields have experienced significant upward movements, reaching their highest levels in over 15 years. The 10-year yield has surged past 4.5%, while the 30-year yield hovered around 4.7%.

This surge is driven by investor concerns that the Federal Reserve might keep interest rates elevated for an extended period. The iShares 20+ Year Treasury Bond ETF TLT tumbled 8.7% in September, marking the worst month since April 2022, the second-worst since January 2009.

Chart: Long-Term Treasury Bonds Just Had Their Second-Worst Month Since Global Financial Crisis

Government Shutdown Risk: On the political front, the stalemate over a deal to prevent a U.S. government shutdown continues, causing anxiety among market participants. Moody’s has issued a warning the U.S. Treasury could face adverse credit consequences if a shutdown occurs.

Cannabis Industry Nearer To Banking Access: The Senate Banking Committee has given its approval to the Secure and Fair Enforcement Regulation (SAFER) Banking Act. This landmark bill is designed to grant legal cannabis businesses access to banks and financial institutions that were previously off-limits to them. The next step for the bill is a full Senate floor vote.

Dimon Worries About A 7% Rate World: JPMorgan Chase & Co. JPM CEO Jamie Dimon expressed concern about the potential scenario of interest rates surging to 7%. Such a development could have severe repercussions for both American businesses and consumers.

Market Expectations For Fed Unmoved By Inflation Data: The Fed’s preferred measure of inflation didn’t rattle the markets. In August, the Personal Consumption Expenditures price index rose in line with expectations at 3.5% year-on-year, while the core PCE price index fell from 4.2% to 3.9% year-on-year, also aligning with forecasts. Traders largely continue to anticipate the Fed will maintain interest rates in November, with market-implied probabilities of a hold standing at 85%, according to CME Group.

WGA Secures Deal With Studios: Earlier in the week, the Writers Guild of America, representing over 11,000 screenwriters, reached a tentative agreement with studios and entertainment companies. This agreement includes significant increases in compensation for streaming content and minimum staffing requirements for television shows.

Student Loan Repayment Resume: After a pause of more than three years due to the COVID-19 pandemic, federal student loan borrowers are preparing for the resumption of their monthly payments starting in October. This change could potentially lead to new spending patterns and financial stress for nearly 44 million Americans.

Stock Market Highlights: Once again, the energy sector, as tracked by the Energy Select Sector SPDR Fund XLE, claimed the top spot as the week’s best performer, solidifying its strong overperformance throughout September, thanks to oil prices surging past the $90 per barrel mark. Notably, shares of the oil giant Exxon Mobil Corp. XOM reached new all-time highs this week. 

What To Watch In The Week Ahead: A U.S. government shutdown could halt official data releases. Investors will watch ISM Manufacturing and Services PMI readings for September on Monday and Wednesday. The ADP private non-farm payrolls report on Wednesday deserves heightened attention due to the federal data release uncertainty. Several Fed speakers will comment on monetary policy.

Earnings reports for large caps are light next week, including McCormick & Company Inc. MKC on Tuesday, RPM International Inc. RPM on Wednesday, and Constellation Brands Inc. STZ, Conagra Brands Inc. CAG and Lamb Weston Holdings Inc. LW on Thursday.

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