After such a terrible September it was never going to take much to get the new month and quarter off to a good start.
The unexpected last-minute stopgap measure over the weekend to avoid a government shutdown did the trick in early trading Monday, although stock market futures slipped since.
But how long will the positivity last? The funding bill removes just one headwind—and only takes it off the table for 45 days. The fourth quarter could yet be hit by a shutdown.
The other risks markets faced in September—including the prospect of higher-for-longer interest rates, elevated oil prices, and sticky inflation—are still very much in the picture.
It’s not quite all doom and gloom. The avoidance of a shutdown also means economic data will be released as scheduled this week, bringing the potential for good news. It’s a big week for labor market figures particularly, with job openings, private payrolls, and September’s jobs report all on tap.
The Federal Reserve needs to see the labor market cooling if it’s going to alter its higher-for-longer narrative around interest rates.
There are more straws for investors to clutch at. October and November have been the second and third best performing months for the S&P 500 over the past 10 years, rising an average 2.3% and 3.2%, according to FactSet data.
Maybe that statistic, plus a couple of the risks fading into the background, will be enough for the stock market to mount a tentative comeback.
—Callum Keown
*** Join Barron’s deputy editor Ben Levisohn today at noon when he talks with Vanguard Chief Investment Officer Gregory Davis and Barron’s senior writer Al Root about the outlook for the Fed, when bond yields will stop rising, and what’s next for the stock market. Sign up here.
Try your hand at this morning’s Barron’s digital jigsaw, which is based on the week’s cover story. For all games, including the daily crossword and sudoku, click here.
***
The Government Stayed Open, but the Drama Hasn’t Ended
House Speaker Kevin McCarthy faces a challenge to his leadership after pushing through a stopgap measure to keep the government open this weekend. Hard-liner House Republicans are angry that McCarthy secured the bill’s passage with Democrat votes after their own caucus couldn’t reach agreement.
- Rep. Matt Gaetz (R., Fla.) said Sunday he will present a motion to vacate the speakership, a procedure to force a vote in the chamber on whether to remove McCarthy. He told CNN’s State of the Union it was time “to rip off the Band-Aid.”
- McCarthy told CBS he believes he would survive a vote. “Bring it on,” he said. A motion to vacate can be made by just one person. But it isn’t clear whether Gaetz has enough votes, or whether he would also have to rely on Democrats to push it through.
- With a razor-thin majority in the House, a vote on whether the Speaker stays or goes could be complicated. If more than five Republicans support Gaetz’s effort, Democrat votes would be needed to defeat it. It wasn’t clear whether any Democrats would agree to support McCarthy for Speaker.
- Saturday night’s late deal averting a government shutdown didn’t include aid for Ukraine, which will be put forward in a separate bill. President Joe Biden, speaking from the White House on Sunday, urged GOP lawmakers to keep their commitment to Ukraine funding.
What’s Next: The stopgap measure gives Congress another 45 days to find agreement on government funding for the next year. Rep. Michael Lawler (R, N.Y.) told ABC that Gaetz’s threatened motion would delay the House’s ability to complete its work on those spending bills.
—Liz Moyer
***
Jobs in Focus This Week, Including Friday’s September Reading
Investors await three barometers of the labor market this week, including Friday’s job report for September. Persistent strength in employment has surprised Federal Reserve economists, who have adjusted their unemployment forecasts lower. Even Wall Street analysts have postponed or withdrawn recession forecasts.
- On Tuesday, the Bureau of Labor Statistics releases the Job Openings and Labor Turnover Survey. Analysts expect 8.8 million job openings at the end of August, the same as July. Openings are down 27% from the record in March 2022.
- At the September Federal Open Market Committee press conference Federal Reserve Chairman Jerome Powell said that “although the jobs-to-workers gap has narrowed, labor demand still exceeds the supply of available workers.”
- ADP releases its jobs report for September on Wednesday. Analysts expect it to say the economy added 140,000 private-sector jobs, after adding 177,000 in August. The services sector continued to account for most gains in August, led by education and health services.
- Friday’s jobs report is expected to show a gain of 155,000, versus 187,000 in August, with the unemployment rate falling to 3.7% from 3.8%. Jobs growth has cooled. The three-month average through August was 150,000 compared with 438,000 for the two years through May.
What’s Next: A resurgence of inflation, that would demand interest rates to be sharply higher than expected, would make it more difficult for the labor market and the broad economy to maintain their current strength. But a good sign is the recent moderation in job growth has yet to push the unemployment rate higher.
—Liz Moyer and Megan Cassella
***
Bankman-Fried Trial This Week Highlights Crypto Malaise
Once an investor darling, crypto has been in a lull lately, grappling with bored traders and regulatory scrutiny. The trial of former FTX chief Sam Bankman-Fried is a reminder of how the crypto industry got here, and why caution is needed. Bankman-Fried, on trial for fraud, has pleaded not guilty.
- Crypto prices have flatlined, trading volume has collapsed, and hardly anyone outside the industry seems to care. Online Google searches for Bitcoin are down 87% from their peak in 2021. Searches for “cryptocurrency” are down 96%.
-
Centralized exchanges such as
Coinbase
and Binance are handling around $30 billion trades a day—less than half their levels a year ago and about 15% of the roughly $200 billion in daily volume when Bitcoin was flying high in 2021, according to CoinMarketCap. - It’s become harder for crypto start-ups to get funding as Silicon Valley financiers lose interest. Venture-capital funding for crypto companies fell 71%, to $2.3 billion, from the second-quarter periods of 2022 to 2023, according to PitchBook.
- FTX’s new management has told a federal bankruptcy court that Bankman-Fried and other former FTX inner-circle members misappropriated more than $1 billion between 2020 and 2022, using it to buy luxury real estate, make political contributions, and fund “pet” projects.
What’s Next: The trial, set to begin Tuesday, should be a reminder to investors how little recourse they have should the trading platforms they do business with go under. FTX’s bankruptcy estate is still fighting to recover customer assets, regardless of the trial’s outcome.
—Joe Light and Liz Moyer
***
Key Data for
Tesla
as It Updates Model Y
Tesla introduced an updated version of its best-selling Model Y in China on Sunday, according to a report. It comes ahead of a key day for the electric-vehicle maker Monday, when investors will digest its third-quarter unit sales.
- The Model Y update includes a new wheel design, according to Reuters. The starting price was unchanged at around $36,000. The new Model Y move follows an upgraded Model 3 in early September that increased its driving range.
- Estimates for the quarterly unit sales were wider than normal, according to FactSet. The lowest estimate was 438,000 units with the highest at 511,000. The 73,000 unit difference is about twice as wide as it was for the second quarter.
- In the second quarter, Tesla produced almost 480,000 units—nearly 14,000 more than it delivered—but investors don’t want to see inventory building.
What’s Next: When delivery numbers beat the Street, two-thirds of the time Tesla stock goes up between the delivery report and the earnings report. The delivery number can generate a lot of trading volatility.
—Al Root and Brian Swint
***
China’s EV Price War Seems to Be Boosting Activity
There is an electric vehicle price war in China, boosting demand. Early delivery results for three of China’s EV makers in September look solid. NIO,
Li Auto,
and XPeng delivered a combined 66,831 vehicles this past month—up 116% from the same time last year.
- It’s their second-best combined month ever after delivering 68,203 in August. Citi analyst Jeff Chung counted more than 20 price cuts on EV models from at least 10 auto makers. The average discount for EVs in China is about 3.5%, up from 2.5% a few months ago.
-
NIO
delivered 15,461 units in September, up about 44% from the same month last year. For the third quarter, NIO delivered 55,432 units—up about 75% from a year ago. Wall Street projects third-quarter sales of about $2.7 billion, up about 48% from last year. -
XPeng
delivered 15,310 vehicles in September, up about 81% from one year ago. For the third quarter, XPeng delivered 40,278 units—up about 36% from last year. Wall Street expects third-quarter revenue to hit about $1.2 billion, up about 25% from the same time last year. -
Li
delivered 36,060 units in September, up about 213% from a year ago. For the quarter, Li delivered 105,108 units, up almost 300% from last year. Wall Street expects third-quarter revenue to rise about 245% from the same time last year, to about $4.6 billion.
What’s Next: Updated forecasts by Cox Automotive for the U.S. has all new-car sales at about 15.4 million units this year, up from 2022’s 14.2 million. For EVs, current-quarter unit sales of about 300,000 would be up 48% from last year and a record 8% of new-car sales.
—Al Root and Liz Moyer
***
MarketWatch Wants to Hear From you.
The El Niño weather pattern is setting up for warmer-than-usual winter temps for the northern U.S. states and a wetter New England and Florida. What does it mean for skiing and snowboarding?
A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to [email protected].
***
—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner
Read the full article here
