The month of September is in the rearview mirror, as is the third quarter. Today marks the first trading day of October and the second calendar day of the fourth quarter. Market participants have high hopes for the stock market to get back on a winning track this month.
Those high hopes are being suppressed this morning, however, by some higher interest rates. The 2-yr note yield is up seven basis points to 5.11% and the 10-yr note yield is up eight basis points to 4.65%.
Currently, the S&P 500 futures are down 11 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 13 points and are trading fractionally below fair value, and the Dow Jones Industrial Average futures are down 85 points and are trading 0.3% below fair value.
Buyers continue to show some reluctance even though Congress managed to avert a government shutdown by passing a continuing resolution at the last minute. That resolution, though, only keeps the government running until November 17, meaning the funding issue/fight wasn’t settled, only deferred.
Notably, the continuing resolution does not contain funding for Ukraine; meanwhile, Rep. Matt Gaetz (R-FL) said he is going to bring a motion to remove House Speaker McCarthy from speakership because he worked with Democrats in passing a resolution that averted a shutdown, according to CNN.
The political drama clearly isn’t over and neither is the UAW strike. Something else that is just getting started again, though, is student loan payments. Borrowers with federal student loan debt saw a three-year forbearance period end on October 1.
The resumption of student loan payments is casting a shadow on the economic outlook along with the lag effect of the Fed’s rate hikes.
It is understandable, then, that market participants are walking into October somewhat gingerly, mindful that rising interest rates are a real headwind but that the fourth quarter is typically a market-friendly period.
Whether the latter rings true this year should have a lot to do with the path interest rates take, as well as the path the mega-cap stocks take.
There will be some economic data today that holds some sway over the Treasury market. Specifically, the ISM Manufacturing Index for September (Briefing.com consensus 47.8%; prior 47.6%) will be released at 10:00 a.m. ET. This report follows on the heels of some official manufacturing PMI data out of China that showed a return to expansion mode in September and some final PMI readings for eurozone countries that were improved from the preliminary readings but still in a contraction area below 50.0%.
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Originally Posted October 2, 2023 – Walking gingerly into October
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