The stock market will enter the second full week of the government shutdown following a tariff-driven selloff Friday.
At the closing bell, the S&P 500 (^GSPC), tech-heavy Nasdaq Composite (^IXIC), and small cap-focused Russell 2000 (^RUT) all saw their worst daily performances since April 10, just a week after the Trump administration released its initial “Liberation Day” tariff proposals. The Dow Jones Industrial Average (^DJI) notched its worst performance since May.
Gold (GC=F), on the other hand, had its eighth straight week of gains, continuing the biggest precious metals bull rally in decades.
In the week ahead, the market will continue to fly blind on several key points of economic data that would normally publish if not for the gridlock in Washington. Figures ranging from import prices and retail sales to hourly earnings and jobless claims are likely to be missing from the calendar.
Given that the Federal Open Market Committee enters the blackout period for its October meeting starting on Saturday, Oct. 18, if Congress gets through Friday with no deal to re-open the government, the Fed will enter the blackout missing a ream of economic data.
Elsewhere in the corporate world, it’s set to be a big week of earnings as third quarter season gets properly underway. Results from the big banks such as JP Morgan Chase (JPM), Goldman Sachs (GS), and Wells Fargo (WFC) will lead the week. Outside of the financial services sector, big names to watch include Johnson & Johnson (JNJ) and Domino’s (DPZ) on Tuesday and Taiwan Semiconductor Manufacturing (TSM) on Thursday.
Jamie Dimon, CEO of JPMorgan Chase, and Charles Scharf, CEO of Wells Fargo, left, at the U.S. Capitol in Feburary. (Tom Williams/CQ-Roll Call, Inc via Getty Images) ·Tom Williams via Getty Images
It’s not always clear how news out of Washington will impact stocks’ direction. Friday’s market rout shows that Trump’s tariff threats still matter. Meanwhile, the government shutdown seems to so far have had muted impact on the major indices, with Deutsche Bank calling the shutdown’s market effect “de minimis.”
In the past, the major credit rating agencies have noted that a government shutdown like the one currently in effect would reflect negatively on the US government bond rating. Given that the rating agencies have already downgraded government bonds in the last few years on the basis of political instability, said Jeff Buchbinder, chief equity strategist at broker-dealer LPL Financial, this outcome is essentially “off the table.”
In the shutdown negotiations, healthcare is set to be the market sector with the most to gain or lose this time around. The primary battle in Congress keeping Democrats and Republicans from reaching a funding deal is over Affordable Care Act subsidies, set to expire at the end of the year — whether to spend more than $1 trillion to extend them, as the Democrats are seeking, or to let them expire, as Republicans are looking for.
For major healthcare providers like UnitedHealth (UNH) and Humana (HUM), an end to the subsidies could mean a hole in their customer base if millions of Americans unenroll and many more choose not to utilize a plan at all. For providers like Centene (CNC), which focus on ACA plans, a subsidy sunset may signal a large incoming hit to their margins.
Proof that the market is watching carefully: When President Trump on Tuesday expressed encouragement for a deal on subsidies in a Truth Social post, healthcare stocks largely rallied.
One more potential impact vis-a-vis the shutdown is an influx of new job applications to the private sector. Applications started by federal workers were up 157% above their January 1 levels as of October 9, and up 132% above their level on the same date last year, according to data from Indeed. Office of Management and Budget director Russ Vought has promised large-scale firings instead of the usual furlough-with-backpay situation federal workers usually experience during a shutdown. Layoffs began in earnest late Friday.
But at the same time, LPL Financial said in a recent note, private-sector businesses may be loath to hire at all, as access to federal business loans is curtailed.
Toward the tail end of last week, shares in the normally staid and steady group of rare earth minerals companies shot upward as Beijing moved to clamp down on exports of the materials.
On Thursday morning, China’s Ministry of Commerce announced a sweeping new set of export controls on a collection of rare-earth minerals critical for uses including electric vehicle batteries and data center cooling systems. The next day, President Trump posted to Truth Social threatening a “massive” increase on tariffs levied against China.
MP Materials (MP), which operates the only large-scale rare earth mine in the US, spiked by more than 9% on the week, while mining company Trilogy Metals (TMQ) gained more than 185% due to the announcement of an investment by the Trump Administration.
Other winners included USA Rare Earth (USAR), up more than 25% on the week, and international mining giant Freeport-McMoran (FCX), up 3%.
“A rare earth Renaissance is underway in the West,” Ryan Castilloux, the founder and managing director of rare earth research firm Adamas Intelligence, said at a recent conference focus on the minerals.
The share price performance is the knock-on effect of a geopolitical fight that has heated up between the US and China throughout the summer. As China, which mines much of the global share of rare earth minerals and controls more than 90% of the world’s processing capability, has clamped down on exports out of the materials out of the country, largely beginning in April, the Trump administration has looked for ways to put pressure on Beijing.
When the Department of Defense announced that it was taking a stake in MP Materials, part of the deal terms was a requirement for the company to cease exporting any rare earths to China. Government stakes in Lithium Americas Corp (LAC) and Trilogy Metals have signaled to Beijing that Trump is intent on moving the US off reliance on China.
A view of the MP Materials rare earth open-pit mine in Mountain Pass, California, U.S. January 30, 2020. REUTERS/Steve Marcus ·Reuters / Reuters
Economic data: No notable economic data.
Earnings calendar: Fastenal (FAST)
Economic data: NFIB Small Business Optimism index, September (100.5 expected, 100.8 previously)
Earnings calendar: JP Morgan Chase (JPM), Goldman Sachs (GS), Wells Fargo (WFC), Citigroup (C), BlackRock (BLK), Johnson & Johnson (JNJ), Domino’s (DPZ), Albertsons (ACI)
Economic data: MBA Mortgage applications, week ending Oct. 10 (-4.7% previously); Empire Manufacturing, October (0.0 expected, -8.7 previously); Real average hourly earnings, year-on-year, September (0.7% previously); Real average weekly earnings, year-on-year, September (0.4% previously); Federal Reserve Beige Book;
Earnings calendar: Bank of America (BAC), Morgan Stanley (MS), PNC (PNC), Synchrony Financial (SYF), Citizens Financial Group (CFG), Progressive (PGR), Abbott Laboratories (ABT), Prologis (PLD), United Airlines (UAL)
Economic data: Initial jobless claims, week ending Oct. 11 (229,000 expected); Continuing claims, week ending Oct. 4 (1.93 million expected, 1.926 previously); Retail sales advance, month-on-month, September (0.4% expected, 0.6% previously); Retail sales ex auto, month-on-month, September (0.3% expected, 0.7% previously); Retail sales ex auto and gas, September (0.4% expected, 0.7% previously); Retail sales control group, September (0.3% expected, 0.7% previously); Producer price index final demand, month-on-month, September (0.3% expected, -0.1% previously); Producer price index ex food and energy, month-on-month, September (0.2% expected, -0.1% previously); Producer price index final demand, year-on-year, September (2.7% expected, 2.6% previously), Producer price index ex food and energy, year-on-year, September (2.8% previously); Philadelphia Fed business outlook, October (9 expected, 23.2 previously); Business inventories, August (0.1% expected, 0.2% previously); NAHB housing market index, October (33 expected, 32 previously)
Earnings calendar: Taiwan Semiconductor Manufacturing Company (TSM), Charles Schwab (SCHW), BNY Mellon (BK), U.S. Bancorp (USB), Interactive Brokers (IBKR), Marsh & McLennan (MMC), Infosys (INFY), CSX (CSX)
Economic data: Housing starts, September (1.32 million expected, 1.307 million previously); Building permits, September preliminary reading (1.347 million expected, 1.33 million previously); Housing starts, month-on-month, September (1% expected, -8.5% previously); Building permits, month-on-month, September preliminary reading (1.2% expected, -2.3% previously); Import price index, month-on-month, September (0.1% expected, 0.3% previously); Import price index, year-on-year, September (0.0% previously); Export price index, month-on-month, September (0.0% expected, 0.3% previously); Export price index, year-on-year, September (3.4% previously); Industrial production, month-on-month, September (0.0% expected, 0.1% previously); Manufacturing production, September (0.0% expected, 0.2% previously); Capacity utilization, September (77.3% expected, 77.4% previously)
Earnings calendar: American Express (AXP), Truist (TFC), State Street (STT), Ally Financial (ALLY), Comerica (CMA)
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