Morning in New York: focus on the aftermath of the U.S. government shutdown

Daily review and forecast of events on the U.S. stock market from Mikhail Denislamov, Deputy Director of Freedom Capital Markets Research.

The key event that will determine market sentiment was the US government shutdown that began at midnight - after Democrats and Republicans failed to reach a compromise on short-term funding. The Congressional Budget Office (CBO) estimates that around 750,000 federal workers will go on unpaid furlough, creating a cost to the economy of ~$400m per day.

Although historically such situations have not led to significant corrections, the current episode is perceived by the market as relatively more risky. This is due to the possibility of a prolonged pause and delay in the release of key macro data, primarily the September employment report. The Fed recently cut rates and the lack of guidance on inflation and employment adds to the uncertainty. In this environment, markets will be watching alternative indicators provided by private companies with even more attention.

One such indicator will be today's ADP private sector employment report for September. It will temporarily replace the non-farm payrolls report. Consensus: +50k growth (after +54k in August). Any significant surprise in the data may cause a noticeable movement in the markets. Additional attention will be drawn to the ISM Manufacturing PMI, which is expected to come in at 49.0 points (vs. 48.7 a month earlier). A higher value will be seen as a signal of stabilization of the sector, while a weak report will confirm the slowdown in the economy.

No significant corporate reports are scheduled for today.

Futures on US indices show a decline amid the news about the shutdown. We assess the balance of risks as negative with increased volatility. We focus on S&P 500 fluctuations in the range of 6590-6700 points (from -1.5% to +0.2% of the previous session's closing level). We expect a slight spike in volatility, but our medium-term view remains constructive amid the strength of the AI trend, Fed policy easing and the overall resilience of the US economy. Local drawdown is an opportunity to build up long positions.

- Nike (NKE) is strengthening its position with a rise of about 3-4% after releasing a quarterly report that beat analysts' expectations on revenue and earnings. The company noted stable demand and good results in North America and Asian region, which is positive for investor sentiment.

- Lithium Americas (LAC) jumped 40% in the premarket amid news of a 5% stake purchase by the U.S. Department of Energy and a joint venture with General Motors to develop the Western Hemisphere's largest lithium deposit, Thacker Pass.

- GEO Group (GEO) is up 2-3% in pre-market thanks to a new two-year contract with the U.S. Immigration and Customs Enforcement (ICE) with an option to extend it for another year. Investors appreciated the additional predictability of cash flow and reduced regulatory risks for the company.

- Shares of AAR Corp (AIR) are down about 7% in pre-market after announcing an additional 3 million shares at a price of about $83. Although the funds raised are planned to be used for debt reduction and potential M&A deals, the market reacted negatively to the dilution factor.

- Enanta Pharmaceuticals (ENTA) shares lose 11% on the pre-market after the news about the secondary offering of $50 mln. The pressure on quotations is connected with expectations of growth of free float and dilution of investors' shares. This outweighed long-term forecasts for the development of R&D projects of the company.

Trading on September 30, the last day of the month and the third quarter, on U.S. markets ended mostly up. The Dow Jones index renewed its historical maximum, adding 0.18%. The S&P 500 rose by 0.41%, the Nasdaq 100 - by 0.28%, and the Russell 2000 closed almost unchanged (+0.05%). The key drivers of the day were positive corporate news in the health care sector and expectations surrounding the end of the reporting period. Shares from the "Magnificent Seven" showed mixed dynamics, but Nvidia (NVDA: +2.6%) showed strong growth. The health care sector (XLV: +2.41%) led the gains after Pfizer (PFE) announced an agreement with the White House on drug prices, which removes tariff risks from the company. The energy sector (XLE: -1.06%) was the outsider amid falling oil prices.

Macroeconomic statistics released during the day did not have a significant impact on investor sentiment, as they were generally in line with expectations. The number of open vacancies (JOLTS) for August amounted to 7.227 million, which was slightly better than forecast (7.170 million) and confirmed the thesis of gradual, but not a collapse in the labor market cooling. At the same time, the Conference Board Consumer Confidence Index for September fell to 94.2 points, weaker than forecast (96.0). This reflects the growing concern of consumers about the labor market. Speeches of the Fed representatives also did not bring any surprises: Vice Chairman Jefferson noted that the risks to employment are shifted downward, and for inflation - upward, which is consistent with the current cautious position of the regulator.

- Spotify (SPOT: -4.2%) shares came under pressure following the announcement that CEO Daniel Ek will step down to take over as executive chairman. This news of a leadership change at a key time for the company caused uncertainty among investors.

- News of a major deal with Meta (META), which will see CoreWeave (CRWV: +11.7%) deliver more than $14 billion in computing capacity, was a growth driver for the company's stock.

- The announcement of AI automation partnerships with Nvidia (NVDA), Snowflake (SNOW) and OpenAI supported UiPath stock (PATH: +6.5%).

- Shares of Pfizer (PFE: +6.8%) rose amid reports that the company will announce price cuts on a number of drugs as part of a White House initiative, as well as a $70 billion investment in U.S. manufacturing.

- The decision to irreversibly close the Kwinana alumina refinery in Western Australia and related write-downs of about $890 million pressured Alcoa shares (AA: -2.8%).

- Despite the company beating first-quarter earnings estimates and raising its full-year EPS guidance, shares of Paychex (PAYX: -1.4%) came under pressure. Investors were disappointed by a revenue miss and an unexpected slowdown in growth in the PEO (personnel outsourcing) segment, which was seen as a signal that demand from SMEs may be weakening.

This article was AI-translated and verified by a human editor