U.S. stocks soared to record highs on September 30, 2023, defying expectations as the government entered a shutdown. Many traders anticipated a market decline amid the uncertainty, but instead, stocks experienced a significant rally, marking a continuation of the upward trend that has characterized the market since April.
The surge was partly attributed to a mixed bag of economic news. The latest data from the ADP revealed a disappointing loss of 32,000 jobs, marking the third negative month in four and the worst reading since March 2023. Instead of driving sell-offs, this “bad news is good news” sentiment led to increased speculations about potential interest rate cuts, with the odds rising from 1.75 cuts priced in by December to as high as 1.95.
Sectors Driving Market Performance
Sector performance showed a varied landscape. Technology and consumer discretionary stocks led the charge, while materials and financials lagged behind. Notably, healthcare outperformed with a rise exceeding 2%, buoyed by the recent announcement of the TrumpRX initiative, which aims to lower drug prices. This announcement has reinvigorated investor interest in a sector that had struggled throughout the year.
Goldman Sachs reported its trading desk’s activity level at a moderate 5 out of 10. The firm noted a significant buy skew in healthcare and consumer stocks, while hedge funds showed increased interest in technology, media, and telecommunications (TMT) as well as financial stocks. In contrast, growth stocks underperformed compared to value stocks.
The beginning of the fourth quarter saw a mix of price actions. Leading performers included non-profitable TMT stocks and artificial intelligence-related sectors, while growth versus value stocks fell behind.
Market Implications and Future Outlook
Despite the market’s rally, concerns linger regarding the underlying credit structure. The Blackstone private credit business development company (BDC) has slumped to a new multi-year low, reflecting challenges within the credit market. Similarly, another private credit firm, Blue Owl, has struggled, further highlighting potential vulnerabilities.
As the U.S. government shutdown continues indefinitely, analysts predict delays in economic data releases, which could influence market sentiment moving forward. With the third quarter earnings season set to begin in just ten days, investors are keenly awaiting results. Current consensus estimates suggest an expected growth of 6% for the S&P 500, aligning with Goldman Sachs’ forecast of 7% year-on-year growth for 2025.
In summary, while the stock market celebrates record highs, the impact of the government shutdown and underlying credit market issues could pose challenges ahead. Investors remain alert as they prepare for the upcoming earnings announcements that could set the tone for the remainder of the year.
