US Stocks and Dollar Eye NFPs and US Government Shutdown Decision

US Stocks and Dollar Eye NFPs and US Government Shutdown Decision

There remains an unsettled bullish course setting for the broader global financial markets. Will threats like a US government shutdowns, persistent inflation and flagging employment be pushed aside?

Talking Points:

• We are soon to close out September with the S&P 500 scoring a 5th consecutive month’s advance
• The onus of a US government shutdown represents an atypical flashpoints around high level scheduled event risk, and this brinkman event is different
• With fundamental concerns casting a pall over the bullish grind, event risk like the US consumer confidence survey, ISM manufacturing and Friday NFPs carry more weight

A Bullish Market Continues to Fend Off Fundamental Troubles

There remains an unsettled bullish course setting for the broader global financial markets. While benchmarks like the S&P 500 are just off record highs and there are many other models for speculative reach that are near their own cycle or record highs, the tempo of climb remains more of a ‘crawl’. Further, fundamental reconciliation is proving more disparate and less conclusive while stories of ‘retail’ rotation have contributed to question around the ‘quality’ of participation. Keeping the danger level high, there are various, significant headwinds for the diligent macro observer to track. The prospect – arguably, high probability – of a US government shutdown with permanent job losses rather than temporary furloughs is a meaningful concern for more than just its NFPs impact.

Probability of US Government Shutdown in 2025 via Betting Markets

  

Source: Kalshi.com 

 

 

For monetary policy, hope for significant easing from the Federal Reserve to align to President Trump’s aggressive call of an immediate 200 to 300 basis point rate cut seems nigh impossible after the FOMC’s measured rate cut decision, cautious policy statement and last week’s PCE deflator. Along with concerns over the trajectory of general economic activity and less effective liquidity-infusion methods (eg fiscal stimulus), the backdrop doesn’t seem well suited to those seeking ‘exposure to the broader market’ at this later hour of the bull trend. Historically, the benchmark S&P 500 has averaged its worst loss of the calendar year – measured over the past century –in the month of September. However, we seem to be breaking that mold in 2025. It’s always a good time to intone the axiom ‘markets can remain irrational longer than you can remain solvent.’

 

Calendar of Top Global Macro Event Risk

  

Source: John Kicklighter

 

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Consumer Sentiment Can’t Subsist on Risk Appetite Like Market Sentiment

In determining what sparks of volatility could carry a greater chance of igniting larger market trends, it is always best to determine which scheduled events are most capable of steering deeper fundamental interests. While there is certainly a range of noteworthy fodder for many countries around the world (such as a run of emerging market manufacturing activity reports), it seems that there will be a distinct level of depth in US data and deadlines over the coming week. Should the US government take its deadline for funding to the very brink, it will be difficult for markets to shift its attention elsewhere given that there isn’t a clear competitive theme that can effectively offset and given the impact potential of the shutdown is far more varied – and thereby difficult to accurately discount.

However, it is the uncertainty around government activity alongside employment warnings, inflation threats, trade concerns and other economic matters that confidence becomes a root concern. On Tuesday, the Conference Board will release its consumer confidence survey for September. While it comes after the University of Michigan reading, its survey period has extended longer and thereby encompasses swells in more recent issues. Should this reading drop amid a news backdrop of the government shutdown risk, it could contribute more readily to a critical narrative.

Chart of US Google Search Trends for Key Consumer Economic Worries

  

Source: Google Trends 

 

 

 

Continuing to Pay for the Tariffs and Trade Warring

Come Wednesday morning, the fundamental conversation could be heading in very different directions depending on how the outcome of the US government’s internal negotiations. That said, core fundamentals will continue to progress. While there has been something of a shift in the prevailing thematic focus these past weeks – such as a monetary policy fixation as of late – there is a chance that trade could move back into the spotlight. The Trump administration is arguing its case that the president has the ability to apply direct levies on trade partners before the Supreme Court in November, the economic burden remains in place with new product-directed tariffs being raised at regular intervals (furniture and large trucks last week). Though the finer details are debated, the impact of this type of trade warring is generally lower global growth and higher inflation.

 

And, what was the intended benefit of this effort? To restore industry and employment in the United Stated supposedly. The bulk of this perceived benefit would be theoretically directed towards manufacturing, which is why the ISM’s factory activity report for September should be monitored. The overall survey has been in contraction (below 50) since January. The price component surged after the April Liberation Day announcement and the employment gauge has in contraction all through 2025, dipping to its lowest level since the pandemic. When will the supposed payoff kick in?

S&P 500 Overlaid with ISM US Manufacturing and Components (Monthly)

   

Source: John Kicklighter, Standard & Poor’s, ISM 

 

 

 

 

Already a Flashpoint, The NFPs Adds Further Layers of Complication

 

For a third, fundamental focal point through the end of the week, there should be little disputing the importance of Friday’s September nonfarm payrolls release. The health of the labor market in the world’s largest economy – with the richest consumer base – is important enough, but the interest around this series is significantly amplified due to recent developments and shifting thematic tides. From a monetary policy perspective, the Federal Reserve cut rates earlier this month, but it didn’t satisfy the more dovish assumptions of the market’s own forecast – much less the White House’s far more aggressive view. With the PCE deflator picking up last week, a further deterioration in labor conditions could make the next rate cut more certain, but it also carries serious economic complications.

 

Add to that the pressure brought by the significant revisions through recent months and the annual update which has triggered accusations over the credibility of the data and the institution that measures it. If the market is less certain over the veracity of the labor data, it won’t simply dampen the market’s interest in the economic implications. It will instead raise the state of concern and shift the resting assessment towards concern and risk. And, then there is the implications of threats made by the Trump administration that a government shutdown – whether this week or potentially in November – would come with downsizing federal agencies rather than just typical furloughs. The US federal government is one of the largest employers in the United States.

 

 

Chart of US Change in Nonfarm Payrolls and Revisions (Monthly)

  

Source: John Kicklighter, St Louis Federal Reserve Economic Database 

 

 

 

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--- Written by John Kicklighter, Global Head of Content