Daily Commentary

MarketMinder’s View: This article sees a gap opening up between Wall Street optimism and Main Street pessimism, resulting in the titular flashing “recession indicator.” As the summary up top states: “Wall Street remains optimistic about avoiding recession, but consumer confidence is sliding, with the Conference Board’s Expectations Index falling further into recessionary territory in September. Confidence in business conditions and job availability has weakened sharply, raising concerns that the spending power underpinning corporate growth could falter. While inflation expectations eased slightly, they remain elevated, and economists warn the looming government shutdown could further obscure the economic picture by halting key data releases.” But an ongoing bull market and “recessionary” consumer confidence aren’t incompatible. After all, stocks climb a wall of worry, which people spy aplenty. Reality—or people’s feelings about it—doesn’t have to be objectively “good” for stocks to keep ascending. It just has to exceed expectations, and with those “recessionary” outlooks, we see a low bar to clear. As for the government shutdown and the supposed “void” of official economic releases, don’t fret that, either. Markets aren’t flying blind. Government reports are always in the rearview for stocks, which continually look anywhere from 3 to 30 months ahead at all available data. Missing public releases may make that somewhat harder to reconcile, but they aren’t a fundamental market impediment. Then too, government shutdowns are nothingburgers for the economy and stocks. While they may pair with higher short-term volatility at times, they have never led to lasting downturns. We don’t see this one any differently whether short (days) or long (weeks). For more, please see today’s commentary, “Government Shutdown: Stocks Don’t Sweat the Squabbling.”

MarketMinder’s View: First, the figures: “The Institute for Supply Management’s [ISM’s Manufacturing] Purchasing Managers Index, or PMI, came in at 49.1 in September, up from 48.7 in August. A reading above 50 indicates growth. The September reading is the seventh consecutive reading below that level. The January reading was positive at 50.9, snapping a streak of 26 consecutive months below 50, after all revisions. ... The new orders index, which is a gauge of future demand, fell back below 50, coming [in] at 48.9.” We can call a spade a spade: This report is weak and extends a longer-running trend. But while manufacturing is mired in a soft patch, that doesn’t necessarily spell trouble for the services-dominant US economy. During the seven-month, sub-50 streak, economic growth was fine. Same with the 26 months before January—during which tariffs weren’t to blame. Broader industrial production has been lackluster for years, but because it is only about 16% of GDP (per the Bureau of Economic Analysis), it isn’t a huge driver of economic growth. As for the titular tariffs, they haven’t helped. Like one respondent to ISM’s survey says, “Steel tariffs are killing us,” which we don’t dismiss: Metals tariffs hurt domestic producers. But even here, the S&P 500’s Industrials sector is up 18.0% year to date, per FactSet. The article finds this confounding and concludes, “So far, investors have shrugged off most tariff news, believing things will get better eventually. Improvement hasn’t shown up yet.” Yet for stocks, tariffs may be bad, but their effect remains well short of the worst-case scenario forecasts six months ago. That better-than-appreciated reality can buoy broader markets.

MarketMinder’s View: With the Bureau of Labor Statistics’ September jobs report scheduled for Friday possibly delayed by the government shutdown, a lot of attention has turned to payroll processing firm ADP’s employment tally. “Companies shed a seasonally adjusted 32,000 jobs during the month, the biggest slide since March 2023 ... Economists surveyed by Dow Jones had been looking for an increase of 45,000. In addition to the drop in September, the August payrolls number was revised to a loss of 3,000 from an initially reported increase of 54,000.” The article goes on to dwell on what this means for the Fed and the economy, but the short answer for investors is: not much. There is no telling what the Fed will do since its members interpret data differently and no one can reliably read their minds. Besides, jobs data are backward-looking: Last month’s data are ancient history for forward-looking stocks. We do see some useful details for investors, though. For example, “Businesses with fewer than 50 employees lost 40,000, while companies with 500 or more employees added 33,000. ... Even with the slowdown in hiring, wages in September grew 4.5% on an annual basis, little changed from August, ADP said.” This suggests small businesses’ struggles have been more pronounced while overall income—no matter how it is distributed—continues climbing, which is a more meaningful driver of household spending than employment. This confirms what stocks already priced, but in the potential absence of official labor data, we think the added clarity—even in hindsight—provides insight for investors.