Strong earnings so far amid the third longest government shutdown
Summary
The current federal government shutdown is now the third longest in U.S. history. Fed Chair Jerome Powell reaffirmed expectations for a rate cut, signaling continued support amid economic uncertainty. The market continues to expect a 25 bps rate cut at the October meeting.
The stock market rose 1.7% last week recovering most of the losses from the prior week. The S&P 500 is up 14.5% YTD while October performance remains nearly flat at -0.3%. The 10-year U.S. Treasury yield fell 3 bps to 4.02%, briefly closing below 4.0% (3.99% on Thursday) for the first time since October 2024.
Earnings season shows strong results
Earnings season is underway, with early results pointing to strength in key sectors. By last Friday, 12% of companies had reported Q3 results, with the majority beating consensus estimates. Results from the largest banks indicate that Wall Street is thriving, but some executives noted that if the job market continues to weaken, credit quality will suffer, which may prompt higher losses. Large banks also reported strong trading, M&A, and solid consumer health, while some regional banks flagged credit quality concerns.
Shutdown update
According to a JP Morgan report, there is an 80% chance that the shutdown breaks a record 35 days set in 2018-2019. The report cited a lack of urgency on both sides of the political aisle.
The pressure of an October 15 military pay date did not result in an end to the government shutdown, as President Trump reallocated available funds from the 2026 fiscal year budget to pay 1.3 million service members. The next military pay date is October 31.
Since October 1, President Trump has announced around 4,000 layoffs (not furloughs), but a judge has temporarily halted these terminations pending a hearing set for October 28.
The week ahead
There will be no speeches from Fed officials this week due to the FOMC’s blackout period. Earnings season continues, with 14% of S&P 500 firms reporting. The delayed September CPI report is set to be released on Friday, while new home sales and jobless claims may be delayed if the government shutdown persists.
U.S. Treasuries
U.S. Treasuries indicate yields for on-the-run U.S. Treasury bills, notes, and bonds, which are typically the most recently auctioned and most liquid issue with a maturity closest to the stated tenor. These are commonly used for pricing fixed-rate debt at origination and for calculating yield maintenance.
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SONIA
SONIA is the Sterling Overnight Index Average. It is published each London business day by the Bank of England and measures the cost of overnight, unsecured borrowing. Daily SONIA fixings are compounded to calculate an overall floating rate for an interest period. Compounded SONIA fixings provided by Chatham reflect the backward-looking rate for the designated tenors.
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Disclaimers
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
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