As goes tech, so goes the market. The tech sector has gone red for the week, but remains up 6.1% for the trailing month (+19.8% YTD). Communication services have also slid into the red but are up 5.5% for the month (+21.3% YTD). The Magnificent 7 is down 1% for the trailing week, + 6.6% for the month (+17.8% YTD). A bit of profit-taking is not unexpected after these moves. The AI narrative is not being questioned.
Putting pressure on the market today is surprisingly strong economic data, which has hit interest rates. Jobless claims were expected to be flat and fell materially, both initial and continuing claims. Durable goods orders for August were expected to be negative and were strongly positive, both core and headline. Goods trade balance also fell much more than forecast. The bond market reacted quickly to this strength. The US 2-year is up 6 bps, the 10-year 4 bps.
Also stirring the pot is the brinkmanship of another government shutdown beginning next Wednesday, October 1st. We’ve been here before, but this time, the Democrats’ frustration with Trump’s bold moves may force their hand in an effort to be seen as having a backbone. For Trump, it would allow him to cut government jobs faster than he already has. A side risk is that the rating agencies may use it as an opportunity to put the US on credit watch, something they’ve done before, as they are not happy with the soaring debt levels anyway. If a shutdown happens, it is likely to bring short-term market volatility.
On the commodity front, gold is flat, silver is up 2%, crude oil is slightly red and natural gas is up 3.8%. The US dollar index has clawed its way back to 98. Crypto is weak again, a sign of risk-off sentiment, with Bitcoin down to $111.2K and Ethereum briefly breaking below $4K.
As the trading day continues, the market is well off the early lows as dip buyers stepped in. While the strong economic data has put a shadow on Fed cuts, a stronger economy is always good for stocks. If the strength continues, it’s setting up for a strong 4th quarter, even if the Fed hesitates, as that’s probably only going to last until Powell is replaced.
