Even a government shutdown couldn’t dent the market
So much for the U.S. government shutdown being the catalyst of the market dip that traders were waiting for. The market’s negative reaction lasted all of a few hours before the usual script took over: weak data drove rate-cut expectations higher, and stocks soared back to fresh all-time highs. The catalyst this time was a truly ugly U.S. jobs report from ADP, showing a net job loss of 32,000, which was the third negative reading in four months and the worst since early 2023. And with the shutdown forcing the cancellation of Friday’s official payrolls report, investors ran with it.
The soft labour data sent rate-cut expectations soaring, with markets now pricing nearly two full cuts by December. The U.S. dollar slid for a fourth straight day, U.S. Treasury yields followed lower, and even crypto saw a sharp increase. Gold and silver barely moved, but equity traders are clearly positioning for more interest rate cuts from the U.S. Federal Reserve (the Fed). Next up: earnings. We’re 10 days away from Q3 reporting season, where consensus calls for S&P 500 earnings growth of about 6% (the Magnificent Seven doing most of the heavy lifting, with growth of 14%).
Even with Washington on pause, equity markets barely blinked, as AI exuberance continued to dominate the narrative. A new secondary share sale valued OpenAI at US$500 billion, making it the world’s most valuable start-up and eclipsing SpaceX. The ripple effects across markets are hard to overstate; since ChatGPT’s launch in late 2022, AI-linked companies have delivered most of the S&P’s gains, almost all of the earnings growth and 90% of capital expenditure growth. And the scale of the investment needed means big tech can no longer rely on organic cash flows alone. The race is going to require leverage. What started as a strategic capital expenditure push is quickly turning into a debt-fuelled arms race, and no one wants to be left behind.
Tesla stock somehow made a new all-time high again, after the company smashed Q3 delivery estimates. Total deliveries hit 497,099, far above consensus expectations. The bread-and-butter Model 3 and Model Y lineups did most of the heavy lifting, selling well ahead of forecasts. Even the company’s smaller-volume models saw sequential growth, up 53% from the prior quarter.
The blowout quarter is shocking to many, especially considering the awful first quarter and what looked like a general consumer shift away from the Tesla brand. Shares are now up more than 30% in a month, and Elon Musk’s net worth has reached $500 billion, the first time anyone in history has reached this level. A rather unexpected turn of events.
Looking ahead, with Washington shut down and not much on Canada's plate, next week’s data calendar is thin, and market attention will shift toward corporate earnings. The real action begins in two weeks, when Q3 reporting season kicks off, giving investors a clearer read on whether this rally still has fuel.
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