The government shutdown – for however long it lasts – may or may not impact a raft of data that investors are keenly waiting for on both inflation and labor markets. For investors this may be the trickiest part of the shutdown, at least in the near term.
ADP data out suggests that weakness in the labor market may become more of a problem as those numbers were weak and revised lower for last month. The continuing question of how many jobs is “enough” in this economy will not likely be resolved with US government data on hiatus. It is not likely that the recent negative numbers will suffice, as the services component looks to have turned negative while the good producing component looks flat at best. Although the negative numbers do give rise to hopes of expected easing from the Fed.
Q3 earnings season will soon be upon us, and like the balance of the year the moving goal posts on tariffs and trade policies will be up for discussion. The question of “who pays” for tariffs will continue and investors will be looking to see if inventories have finally been depleted to the point that prices will have to rise further, potentially triggering higher inflation readings.
Depending on the length of time it takes to come to an agreement to re-open the US government the data that markets will be parsing will be coming from companies themselves – and there is a great deal of uncertainty as we look forward to 2026 on how the various trade policy changes will work through corporate earnings.
This year it could be argued that the consequences of the trade changes have been moved forward and piecemeal in nature. It has been hard to get an overarching sense of how the burden of tariffs will be shared. Will more clarity come in third quarter commentary? It is possible but more likely that uncertainty continues.
US equity markets have managed that uncertainty quite well, all things considered, but the wiggle room may be getting smaller, and that may be part of the labor market weakness in the ADP numbers.
As long as the capex boom for AI continues and investors believe in the future promise of both productivity and efficiency gains on the horizon markets may be able to follow suit. Cracks in that story, however, have created volatility in the last 12 months and with current valuations and a lack of economic data to parse it would not be beneficial to equity investors to find any more.
The views expressed are those of the Alpine Saxon Woods, LLC management team as of the date indicated, and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Performance data quoted represents past performance and does not guarantee future results. All data referenced are from sources deemed to be reliable but cannot be guaranteed. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.
