Macro Vitals Show Life Despite Dead Zone for Data

Key Takeaways

• U.S. growth remains resilient
• Japan gets a new leader
• Markets unfazed by shutdown

On this week’s edition of Market Week in Review, Global Chief Investment Strategist Paul Eitelman assessed the health of the U.S. economy amid the ongoing government shutdown. He also dug into political developments around the globe and recapped recent market performance.

Eitelman began by noting the government shutdown in the United States is now in its second week, with Congress unable to agree on a new funding bill. As a result, the release of key reports used to gauge the economy’s health—including September’s jobs report—has been delayed.

“The U.S. is effectively in a data blackout until the shutdown ends. However, private-sector data suggests the economy is still chugging along,” Eitelman said. As evidence, he pointed to the latest composite PMI (purchasing managers’ index) survey for the U.S. That reading indicates modest growth in both the manufacturing and services sectors, Eitelman said, with signs business optimism is also picking up. Meanwhile, the U.S. labor market still looks to be at a stalemate, characterized by weak hiring and low turnover rates.

Eitelman said the data void should be filled soon, with third-quarter earnings season beginning next week. “While consensus expectations are for 9% earnings growth in the S&P 500, I wouldn’t be surprised if that number comes in higher,” he remarked. Either way, a healthy earnings season would bolster the economy and help keep layoffs at bay, Eitelman stated.

Shifting his gaze to global politics, Eitelman noted Sanae Takaichi will likely become Japan’s first female prime minister later this month. Takaichi beat out other candidates from the ruling Liberal Democratic Party in a recent vote and is expected to be sworn in by the Japanese legislature later this month.

“Takaichi campaigned on an expansionary fiscal policy, which markets see as positive for equities but negative for the yen and long-term government bonds,” Eitelman remarked.

Moving to France, he said the country’s new prime minister resigned Monday after less than a month in office, suggesting France is headed for new parliamentary elections.

“The major political parties in France are aligned on the need for spending cuts but haven’t been able to agree on how much belt tightening is needed—or the specific policies to put in place,” Eitelman explained. He noted French stocks fell in the aftermath of the news before recovering as the week progressed.

Circling back to the U.S., Eitelman said the stock market remains unfazed by the closure of the federal government.

“The S&P 500 and Nasdaq both set new all-time highs on Wednesday and could potentially rise higher if earnings season gets off to a strong start next week,” he said. Eitelman stressed that the market’s reaction since the shutdown began is not unusual, with the S&P posting positive gains during the last six government closures.