Stocks End Strong Quarter With Moderate Gains: Markets Wrap

(Bloomberg) — US equities notched a second straight quarter of gains even as stock moves were tepid for most of Tuesday’s session as the US government nears a shutdown.

The S&P 500 ended the day 0.4% higher after oscillating between small gains and losses for hours. The index had its best September in 15 years, fueled by optimism over artificial intelligence and lower rates. Treasuries gained for the third consecutive quarter.

The Bloomberg Dollar Spot Index was little changed for the month. Oil slipped in a choppy day of trading as OPEC+ considers boosting the pace of future output hikes.

Traders are concerned this week that the US government shutdown would delay the release of Friday’s nonfarm payrolls data by the Bureau of Labor Statistics, clouding the Federal Reserve’s path of interest-rate cuts. Economic data over the past month showed that the labor market is slowing down while inflation is relatively under control — though still above the Fed’s 2% target. BLS’ data would have provided more clarity on the state of the jobs market and consequently the central bank’s pace of rate cuts for the rest of the year.

“Things could get ugly if the shutdown creates an information vacuum for jobs and inflation data ahead of the next Fed rate decision,” said Michael Bailey at FBB Capital Partners. “Also, with stocks and valuations near prior peaks, we could see some minor bad news snowball into a correction near term.”

Traders are still getting glimpses this week of how the labor market is faring. The JOLTS report on Tuesday showed US job openings were little changed in August while hiring was subdued, indicating that demand for workers is slowing. Wednesday’s data will provide insight on company hiring.

The lack of key data on Friday in the event of a shutdown wouldn’t change the Fed’s decision for at least its upcoming meeting in October, according to David Seif, Nomura’s chief economist for developed markets.

“The less data that comes out, the less reason the Fed would have to deviate from the dot plot,” he said on Bloomberg Television on Tuesday. “Meaning, the more likely it is that they’ll cut exactly 25 basis points in October, which is what the dot plot indicates. So it’s our view that will happen, whether or not they get the data.”

The length of the shutdown is important to note, as stocks typically weaken in the event of longer shutdowns while rates rally, according to Citi Research. Monica Guerra, head of US policy at Morgan Stanley Wealth Management, writes that shutdowns in the past have had minimal negative impact on real GDP and S&P 500 performance historically.

“Sectors with high exposure to government contracts, such as defense and health care, may face weakness in a full shutdown scenario, indicating a buying opportunity given a positive long-term outlook for the sectors,” she wrote.

Traders have also been hearing from a handful of Fed speakers. Chicago Fed President Austan Goolsbee said the most recent round of tariffs may be causing businesses in his district to again pause decision-making in order to see where the levies settle. Boston Fed President Susan Collins said further rate reductions may be appropriate this year given a weaker labor market, but officials need to remain wary about the possibility of persistent inflation. Fed Vice Chair Philip Jefferson warned that the central bank faces a cooling labor market alongside rising inflation pressures, complicating the policy outlook.

“I see the risks to employment as tilted to the downside and risks to inflation to the upside,” Jefferson said in remarks prepared for the fourth International Monetary Policy Conference hosted by the Bank of Finland. “It follows that both sides of our mandate are under pressure.”

Key Corporate News:

Pfizer Inc. secured a reprieve from President Donald Trump’s long-threatened tariffs on the pharmaceutical industry Tuesday by agreeing to slash some of its drug prices by up to 85% and selling directly to the American public, a move other major drugmakers are expected to follow. Nike Inc.’s wholesale business and strength in North America powered the company’s latest quarterly sales above Wall Street’s expectations, showing that turnaround efforts at the world’s largest sportswear company are starting to deliver results. CoreWeave Inc. has signed a deal to supply Meta Platforms Inc. with as much as $14.2 billion worth of computing power. Morgan Stanley’s stress capital buffer requirement has been lowered to 4.3%, down from an initial 5.1%, the Federal Reserve said on Tuesday. Some of the main moves in markets:

Stocks

The S&P 500 rose 0.4% as of 4:03 p.m. New York time The Nasdaq 100 rose 0.3% The Dow Jones Industrial Average rose 0.2% The MSCI World Index rose 0.4% Currencies

The Bloomberg Dollar Spot Index fell 0.2% The euro was little changed at $1.1738 The British pound rose 0.1% to $1.3444 The Japanese yen rose 0.5% to 147.90 per dollar Cryptocurrencies

Bitcoin was little changed at $114,271.76 Ether fell 1.8% to $4,152.91 Bonds

The yield on 10-year Treasuries advanced one basis point to 4.15% Germany’s 10-year yield was little changed at 2.71% Britain’s 10-year yield was little changed at 4.70% Commodities

West Texas Intermediate crude fell 1.4% to $62.56 a barrel Spot gold rose 0.5% to $3,853.67 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Andre Janse van Vuuren, Eman Abouhassira, Isabelle Lee, Vildana Hajric and Tatiana Darie.

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