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On Work Stoppages and Stock Market Futures

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Over the past four months or so, the stock market has been on a real roller coaster ride. Previous to that, after bottoming out in mid-March, we made a strong climb across indices, but especially on the Nasdaq, with the help of the A.I. narrative and the tech companies that supply it. Eventually, the market exuberance spread to other industries and indices, but not enough to hang onto big gains without first dipping and weaving over time.

That’s the past week of trading in microcosm, at least thus far: each time a trading day seems to give life to an invigorated bullish sentiment, it gets slapped down by an overwhelming bearish view, which combines a true “higher for longer” Fed funds rate narrative, uncertainty regarding a federal government shutdown and perhaps a recession sometime in the new year, and general deflation of already high market levels year to date, at least on the Nasdaq and perhaps the S&P 500.

Speaking of a government shutdown, the last time we saw one of these was over Christmas and New Year’s in 2018-19, when then-President Trump was at an impasse with Congress over whether to fund his border wall between the U.S. and Mexico (the funds were never appropriated; the only money going to partially build the wall was repurposed from other government coffers). The last time there was a government shutdown in the manner threatened today happened back in 2011, with the same federal makeup: a Democratic president and a congress led by Republicans.

Moody’s (MCO - Free Report) this morning openly fretted that a government shutdown could lead to a downgrade of U.S. debt, the same as happened in 2011, for the first time in the nation’s history. Coming as it did so soon after the financial meltdown that led to the Great Recession, this credit rating cut did have reverberations throughout the global economy, although the big market selloff didn’t really occur until the second rating cut in late November, from Fitch.

We also continue to have a workers strike in Detroit between the “Big 3” U.S. automakers and the United Autoworkers Union (UAW). President Biden is scheduled to appear with union leadership, consistent with his strong pro-union stance that is a staple of Biden’s political career. The good news came from the West Coast, where a tentative agreement between the big Hollywood studios and the Writers Guild has been reached. So far, discussions have progressed with the studios and the SAG/AFTRA actors union, but no agreement has yet been reached.

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