U.S. stocks opened lower on Wednesday as the government shutdown threatens to delay the release of key economic data. Meanwhile, recently released data has strengthened expectations for Federal Reserve rate cuts later this month, boosting Treasury bonds.
At 9:42 a.m. New York time, the S&P 500 fell 0.2%, following its strongest September performance in 15 years. The Nasdaq 100 dropped 0.3%, while the Dow Jones remained relatively flat. Treasury yields declined across the board, with the 10-year yield falling to 4.09%. Gold strengthened, and the Bloomberg Dollar Spot Index fell for the fourth consecutive day.
Wednesday's ADP report showed that U.S. private employment unexpectedly declined in September, aligning with other data from the past month that indicates a cooling labor market. Traders accordingly increased their bets on two additional Federal Reserve rate cuts this year.
While the Bureau of Labor Statistics' nonfarm payrolls report could potentially be delayed due to the government shutdown, traders have already received some insights into the labor market this week. Tuesday's JOLTS report showed that U.S. job openings remained essentially flat in August, with subdued hiring activity suggesting weakening demand for workers. However, investors are concerned about how long the government shutdown will last and what data the Federal Reserve will be unable to access.
"If the government remains shut down, we expect to lose Friday's jobs report, and even the mid-October CPI report is at risk," said Glen Smith, Chief Investment Officer at GDS Wealth Management. "The absence of data comes as the Fed is set to make another interest rate decision later this month."
Stuart Kaiser, Head of U.S. Equity Trading Strategy at Citigroup, doesn't believe the government shutdown will immediately harm the stock market.
"For it to really impact equities, the shutdown needs to persist for some time, where you see fairly significant layoffs, or you see something happen in the bond market that spills over into equities," he said on Wednesday.
