Today’s market action saw stocks giving up early gains as concerns about prolonged high interest rates continued to weigh on investor sentiment. The S&P 500, Dow Jones Industrial Average, and the tech-heavy Nasdaq Composite all retreated modestly. This comes after a punishing session yesterday that marked the Dow’s worst performance since March. The market is grappling with a cocktail of worries, ranging from a Fed signaling that rates haven’t yet peaked to a decline in consumer confidence and the looming threat of a government shutdown.
The 10-year Treasury yield, a key indicator for market sentiment, hovered around 4.55% today. This comes after the yield hit a 16-year high in the previous session, putting additional pressure on equities. In the commodities sector, West Texas Intermediate crude oil rallied nearly 3% to around $93 a barrel, while Brent crude advanced 2% to nearly $96 a barrel.
On the political front, the clock is ticking toward a potential U.S. government shutdown. Senate Majority Leader Chuck Schumer announced a 79-page bill aimed at averting this crisis. “It will continue to fund the government at present levels while maintaining our commitment to Ukraine’s security and humanitarian needs while also ensuring those impacted by natural disasters across the country begin to get the resources they need,” Schumer stated. Senate Minority Leader Mitch McConnell backed the deal, describing it as a “standard, responsible step forward.”
The proposed bill includes about $6 billion for the war effort in Ukraine and another $6 billion for disaster relief. The Ukraine funding is split into $4.5 billion in direct assistance and $1.65 billion for State Department aid. The disaster relief allocation aims to replenish the dwindling FEMA disaster relief fund. “5,000 [FEMA] employees will be put at risk in what they call lapse of funding if the government shuts down,” warned former FEMA Administrator Craig Fugate.
However, the bill’s passage is far from a done deal. Sen. Rand Paul pledged to delay the process, raising questions about the bill’s fate in the Senate before the Saturday night shutdown deadline. Sen. Ron Johnson also expressed reservations, stating, “I don’t support the CR,” although it remains unclear if he will join efforts to delay the bill.
Even if the Senate greenlights the bill, its future in the House is uncertain. House Republicans have failed to unite behind their own proposal and have rejected bipartisan efforts. Speaker Kevin McCarthy sidestepped commenting on the Senate deal, stating that House Republicans would try to pass their own plan focused on border security measures. The inclusion of Ukraine funding has also sparked resistance, with some House Republicans and Senate counterparts aiming to remove it. Rep. Byron Donalds was more direct, stating, “We should just look at it and throw it in the trash.”
In the corporate sphere, Costco shares took a hit after missing same-store sales expectations, despite beating earnings estimates. Traders are eyeing updates on durable goods and mortgage applications, too, as precursors to the U.S. second-quarter GDP report (due out tomorrow) and the Fed’s preferred PCE inflation reading (due out Friday).
So, as the market navigates this maze of economic, political, and geopolitical factors, the question remains: Is the recent sell-off an overreaction or a harbinger of more turbulence ahead?
Stocks are very oversold still, but if a government shutdown actually happens, there could certainly be more losses as we cross into October.