The major US stock market averages gapped up at the open on a potential cross-party deal to forestall another government shutdown. The Dow is currently up 310 points and the SPX is up 1.2%. Ten of eleven sectors are in the green, led by financials & materials (+1.8%) as well as industrials & consumer discretionary (+1.5%). European markets closed about 1% higher and Asia was up overnight. Hard to believe, but so far in 2019 The Dow is up nearly 9%, the Euro Stoxx 50 Index is up 6%, the Nikkei is up 4% and the Shanghai Composite index is up 7%. To maintain those gains, we’re going to need to see better economic data around the world. The dollar is a little weaker today and commodities are mixed. WTI crude oil is up 1.5% to trade around $53.20/barrel after a report that Saudi Arabia has cut back oil production. Treasury bonds are down in price, up in yield today. The 5-year Treasury yield is back up to 2.49% and the 10-year yield is up to 2.69%.
Congressional negotiators from both major parties came to a tentative agreement on funding to avoid another government shutdown. Last night, they agreed to allow $1.4bil in funding for “non-wall” border security fencing, and strangely, a reduction in the number of beds in deportee detention centers. The whole thing is weird to those searching for traces of common sense. But remember, both sides are straining to reach a compromise that will preserve their beloved campaign messaging for the next election. Terms of the deal must be written into a spending bill, then pass both houses of congress, and of course must then be signed by the president. No one knows whether President Trump will accept it. His initial reaction made it seem like he might acquiesce.
The Nat’l Federation of Independent Business (NFIB) publishes a monthly survey measuring optimism among small business leaders. January’s report shows optimism slipped to its lowest level since the last presidential election. NFIB says the decline “likely reflects both expectations for a significant growth slowdown this year and a temporary impact form the longest on record government shutdown.” In other words, it is partly the result of temporary political dysfunction, and partly due to a longer-lasting, fundamental economic concern. In light of the current political environment, business leaders are having a tough time planning for the future. And yet, if you look at a chart of the survey going back decades, optimism remains at a fairly high level. Economists are still concerned about the drop in optimism, but caution against jumping to any conclusions yet. We need to “wait until the shutdown impact clears from the data.”