Driving in the fog

Last week the US government shutdown extended into record-breaking territory, surpassing the previous 35-day mark set in 2018-19 to become the longest in history. While the US Treasury market has remained relatively calm through this period, strains may be forming elsewhere. Stock market volatility spiked last week, driven by concerns ranging from employment to valuations. Meanwhile, the latest University of Michigan Consumer Sentiment Index fell below Liberation Day lows, reaching the lowest level in three years.

Without official jobs numbers, third-party providers continue to fill the void, with mixed signals. According to payroll processor ADP, private sector employment rose by 42,000 in October, an acceleration from September. In contrast, the outplacement firm Challenger, Gray and Christmas reported that October’s job cuts were the highest tally for the month since 2003. Further, it cited that employers have announced over 1 million job cuts in 2025 so far, an increase of 65% from the same period a year ago. This coincides with sizable layoff announcements from prominent US employers.

Corporate earnings — another economic barometer — have generally been strong this quarter. Over 80% of the S&P 500 has reported, with the majority beating consensus estimates — not just the Magnificent Seven. However, AI bubble fears continue to dominate headlines. Stocks wavered towards the end of last week on valuation concerns and corporate bond investors have taken notice of sizable debt raises to fund AI investment.