US shutdown: why the market remained unfazed

SP500

Key zone: 6,650 - 6,750

Buy: 6,750 (on strong positive fundamentals); target 6,900; StopLoss 6,700

Sell: 6,620 (after a retest of the 6,700 level); target 6,500; StopLoss 6,670

The shutdown increases the likelihood of a Fed rate cut and puts pressure on the dollar. As of Thursday morning, the futures market estimates the probability of a rate cut in October at 100% and over 85% in December. These numbers are higher than before the shutdown, but are unlikely to put additional pressure on the dollar.

Powell argues that markets are overheated, but Wall Street has traditionally ignored Fed warnings as long as corporate earnings remain strong. Moreover, in the past, such statements of the monetary authorities have often become a reason not for a correction, but for a new short-term wave of growth and increase in yields.

If the employment statistics for September will be unavailable, the Fed will prefer to act more cautiously. The ADP report showed a 32k decline in private sector employment, which confirms the continued weakening of the labour market. The ISM manufacturing activity index is also not encouraging: in September it was 49.1 (down), employment was 45.3, and the new orders index fell from 51.4 to 48.9, which is also interpreted as a negative signal.

The S&P 500 index shows a 12-month return of around 13% - the US equity market is steadily outperforming its international peers. At the same time, the growth continues: all major indices closed at historic highs.

• Past shutdowns have not led to catastrophes.
• Strong sectors - technology and healthcare - support the dynamics.
• Weak statistics strengthens expectations of Fed policy easing and stimulates purchases.

For investors, it is obvious that the shutdown is only a temporary factor. Corporate reporting, consumer activity, monetary policy - these fundamental drivers continue to work regardless of whether the US Bureau of Labour Statistics is working and who is in charge.

Markets react not to the fact of the shutdown itself, but to its duration and indirect effects. Traders follow specific events: Nvidia's capitalisation reaches $4.5 trillion, Berkshire is preparing to buy a petrochemical asset for $10 billion, Taiwan is forming oil reserves, etc.

Concerns are only appropriate for strategies built on short-term speculation. Medium-term approaches that take into account economic statistics and fundamental background do not react to political disruptions.

So we act wisely and avoid unnecessary risks.

Profits to y’all!