The final countdown
The path towards avoiding a federal government shutdown is getting slimmer with a pending deadline of 12:01 AM ET on Sunday. Millions of federal employees and military service members will be furloughed in the event that additional funding cannot be approved, the SEC will operate with minimal market oversight, and economic data releases will be delayed at a sensitive time for the U.S. economy. Americans who also rely on federal assistance could face service disruptions, there will be delays on small business loans and clinical trials for medical treatments, exporters won’t be able to get licenses, while a prolonged shutdown could impact air travel or other industries that rely heavily on federal workers.
Where things stand: The Senate currently has bipartisan support for a stopgap measure that would extend funding until Nov. 17, but hardline Republicans in the House have rejected it. The group wants deeper spending cuts and to tie the bill to immigration and border enforcement. The holdouts are triggering a dilemma for House Speaker Kevin McCarthy, and some have even vowed to oust him if they don’t meet their demands. Overnight, the Republican-led House passed a series of partisan bills, including a defense bill that removed funding for Ukraine, but that has little chance of getting through the Democrat-led Senate.
Credit ratings agencies are also taking notice, with Moody’s warning that a shutdown would be credit negative for the U.S. Fitch downgraded America’s credit rating following the debt ceiling drama back in the summer, while S&P was the first to downgrade U.S. government debt in 2011. While budget deadlocks are not unusual in Congress, with shutdowns occurring 21 times over the past five decades, the latest one would “demonstrate the significant constraints that intensifying political polarization puts on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability.”
SA commentary: “Despite potential economic consequences, the S&P 500 and sectors dependent on government funding have historically been unaffected during the duration of the shutdowns,” writes Investing Group Leader Manika Premsingh, author of Green Growth Giants. “The impact of a shutdown depends on its nature and duration, with longer shutdowns having had a notable economic impact in the recent past.”
Just do it.
Nike (NKE) jumped 7.9% after the close on Thursday as quarterly profits beat expectations. While margins continued to decline, hurt by higher product costs and unfavorable foreign exchange rates, strategic pricing actions offset the impact, and margins are expected to improve further in Q2. China sales missed estimates due to forex headwinds, which are expected to continue for the next couple of quarters. Even so, CEO John Donahoe touted Nike’s market share gains in China. “We feel good about the opportunities in China in the coming quarters and into the medium to long term,” he said. See Nike’s results in charts here. (23 comments)
Treasury trouble
U.S. Treasury returns are on track for the worst month this year, as the bond market selloff continued after the Fed signaled that interest rates would remain higher for longer. The recent selloff has pushed the 30-year yield (US30Y) and the 10-year yield (US10Y) to their highest levels in over a decade. Traders are also closely eyeing the release of the Core Personal Consumption Expenditures Price Index – the Fed’s preferred inflation gauge – this morning, with a tame reading would likely assuage some market concerns. Meanwhile, billionaire investor Bill Ackman’s bet against 30-year Treasurys has paid off, and he expects long-term Treasury yields to rise even further amid stubbornly high inflation. (2 comments)
$125.98
Amazon (AMZN) traded flat to end at $125.98 a share on Thursday, notching the same closing price for the third straight session. The trading oddity comes as Amazon has been in the spotlight for a variety of reasons. The FTC this week filed its highly-anticipated lawsuit against the e-commerce giant, and while SA analyst Tradevestor expects the FTC ride to be bumpy, they remain a buyer of the stock. The success of Amazon’s Prime Day event is also at risk, with retail giants Walmart (WMT) and Target (TGT) setting early holiday sales promotions. Furthermore, Amazon is just four weeks away from reporting Q3 earnings and giving its guidance for the crucial holiday quarter. Will Amazon manage to close at $125.98 yet again today? (31 comments)
