Advisors and investors pushed the market higher today, celebrating better than expected data on the inflation front. The fact that they received any information about the economy at all probably enhanced their bullish behavior.
That said, market-participants better enjoy the official data while they can considering the government shutdown - now extended to its 24th day – still has no end in sight.
The latest Consumer Price Index report from the Bureau of Labor Statistics showed US inflation rose by 0.3% in September, slightly below economists’ expectations and offering some reassurance to traders ahead of the Federal Reserve’s upcoming rate decision. The annual inflation rate reached 3.0%, up slightly from August’s 2.9%, but still below the 3.1% consensus forecast of economists.
The September CPI report was released this morning despite the ongoing government shutdown because of this data’s importance in calculating cost-of-living adjustments for Social Security next year. The Social Security Administration (SSA) announced today that 2026’s Cost-of-Living Adjustment (COLA) will be 2.8%, slightly higher than the last COLA, but below the rise in the September CPI. On average, retired workers’ Social Security checks will increase by $54 from $2,008 to $2,062 effective January 1st.
While investors may have expected a more robust rally given the data, concerns abound in some corners that these numbers are less robust than normal, due to the shutdown, according to John Kerschner, global head of securitized products and portfolio manager at Janus Henderson. Given the dearth of government data, Kerschner believes market players are “singularly focused” on what is coming out of Fed governors' mouths, which right now is a preponderance of dovish comments.
“While this may change once the calendar flips to 2026, for the present, the market is predicting 100% chance of another rate cut in December and further bond rallies, notwithstanding the still difficult inflation environment,” Kerschner said.
Likewise, while much of the investment community is lacking economic data, James Cordier, founder of OptionSpreaders.com, believes the Federal Reserve surely has possession of current data trends at the very least. And in his opinion this should offer them some visibility as they consider adjusting rates as soon as next week.
“Just prior to the shutdown inflation figures while not robust seem to be showing signs of being quite sticky. All the while the more trending data has certainly been the jobs figures, which continue to be on the weaker side of what is desired. This should allow the Fed to make an easy quarter point cut next week a move the market has already baked in with 96% certainty,” Cordier said.
Along similar lines, Jeff Erickson, managing director investments at Callan Family Office, says the Federal Reserve has less information during the government shutdown, but “it’s not flying blind.” He points out that there are alternative sources of information on things like consumer auto and home sales, retail activity and credit card spending. Furthermore, the Federal Reserve continues to gather data and publish the Beige Book which describes the regional economies, including labor market conditions, consumer spending patterns and price trends.
“Importantly there has not been any broad news on the economy or inflation that would cause them to change direction and hold back on another rate cut,” Erickson said.
There is simply no question investors and money managers are growing tired of the shutdown as many not only enjoy sifting through the data but also rely upon it for their investment thesis. Nevertheless, Cordier is not seeing an exodus of positions based on the lack of data, at least not yet.
That said, Cordier does see lower volumes in some areas of the market as many market-participants are taking a “wait and see approach prior to committing new capital.”
Callan’s Erickson, meanwhile, says investors have been relying on alternate sources of economic information that are giving them “a sense of economic growth.”
“There are private sources like ADP Payrolls and ISM and S&P Global Purchasing Managers Indexes. There are industry groups that release data on home sales and credit card activity. And investors listen closely to public companies which give them a bottom-up view of economic activity,” Erickson said.
As to how last month’s missing jobs report might that have shaped both market expectations and the Fed’s tone next week, OptionSpreaders.com’s Cordier believes it would have continued to show lackluster employment growth, offering the Fed an easier case to continue dropping rates.
“Sooner or later the market will start wrestling with the idea that perhaps job figures being less than stellar may not be a sign of a sluggish economy but rather early signs Artificial Intelligence is replacing sectors of the workforce. It’s just a matter of time,” Cordier said.
Elsewhere, Dory Wiley, CEO & president of Commerce Street Holdings, declined to guess at what the September jobs report would have shown, but he suspects the Fed will go ahead and cut in October anyway.
“If we don’t have economic data by December, the Fed is essentially flying blind and they’re likely to not do anything,” Wiley said.
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