The end of the longest-ever government shutdown hasn’t been cheered by investors on Thursday.
That may be because a deal to fund the government came too late to revive the possibility that the market could receive some of the crucial economic data it has been missing for the last two months. Most importantly, the lack of key economic statistics is likely to make the Federal Reserve’s job a lot harder when it sits down to decide its next policy move in December.
US stocks were down sharply as investors took in the news that the government may never release an official October inflation and jobs data, and began repricing the odds of a rate cut in December.
Major indexes tumbled, with the sell-off picking up steam after midday. The Dow pulled back 1% after hitting a fresh record high on Wednesday. The 10-year US Treasury yield rose slightly to 4.09%.
Here’s where US indexes stood around 1 p.m. on Thursday:
Here were some of the biggest declines in the tech sector, which was seeing most of the selling pressure in the session.
No data at all could further obscure the path for Fed rate cuts, a bullish catalyst investors have been counting on all year to lift the market higher.
The probability that the Fed will issue another quarter-point cut at its December policy meeting dropped to 53% Thursday morning, down from 95% last month, according to the CME FedWatch tool.
Markets have been left in the dark on data around inflation, jobs, and other key economic indicators during the shutdown. Questions have arisen around what data will be released when the government re-opens its doors, given that some data points, like for inflation, were not collected last month.
“We would not be surprised to see some market chop over the coming weeks as the government gears and economic data presses get turning again. The data blackout has made the Federal Reserve’s job difficult, but we still expect them to cut interest rates again in December,” Carol Schleif, chief market strategist at BMO Private Wealth, said.
It’s likely that September data could be released soon, as it was already collected before the shutdown. However, with statistical agencies shuttered for two months, there are big question marks around future releases.
“As none of October’s data was collected, it creates a challenging scenario for statisticians who will need to survey firms and households about past events to fill in the gaps,” analysts at Capital Economics wrote on Thursday. “As a result, and with response rates to this survey already very low, the most likely outcome is that the BLS does not publish the labour market measures based on the Household Survey (e.g. the unemployment rate and hours worked) for October.”
The White House said some key reports will probably never be published.
“Democrats may have permanently damaged the federal statistical system with October CPI and jobs reports likely never being released,” Karoline Leavitt, the White House press secretary, told reporters Thursday morning. “All of that economic data released will be permanently impaired, leaving our policy makers at the Fed flying blind at a critical period.”
