Shutdown Complacency, Quantum Breakouts, 'Stimmy' Scheme

Tick ... tick ... tick... The seconds pass. The seconds turn into minutes that turn into hours. The hours turn into days. Day three. Happy Friday. Happy Fri-Yay. If investors are concerned over this government shutdown, they sure aren't showing it. On Thursday, trading volumes were lower due to reduced participation as some observed the Jewish Holy Day of Yom Kippur. Still, markets did not move all that much, despite the fact that reduced activity sometimes invites volatility.

I look at the man in the blackened window. He looks back in silence. Older. Perhaps less distinguished. Still silent. U.S. Treasury debt securities were quiet, too. The Ten-Year Note paid 4.09% by day's end on Thursday, down one basis point. I see that yield back up at 4.1% as the wee hours pass. The Two-Year Note paid 3.54% late Thursday (+1 bp). Foreign bond traders seem to be selling the Two Year overnight. That yield is up to 3.56% as I bang out this note.

Equity performance, while moderately strong at the headline level this week, has been selective, to be honest. The S&P 500 gained just four points or 0.06% on Thursday as the Nasdaq Composite added 0.39%. The small- to mid-cap stock indexes gained anywhere from 0.13% to 0.66%. Beyond those broader indexes, the Philly Semiconductors gained an impressive 1.94% led again by Intel (INTC) and Advanced Micro Devices (AMD) , as the Dow Transports added 0.61% led by the airlines.

Breadth Was Stale

Despite positive headline performance, market breadth was not minty fresh on Thursday. Eight of the 11 S&P sector SPDR ETFs closed in the red, led lower by Energy (XLE) and Consumer Discretionaries (XLY) . Materials (XLB) led the winners, despite a U.S. Dollar Index that regained its footing on Thursday. Oddly enough, energy was weak, and materials showed strength in response to the Berkshire Hathaway ( (BRK.A) , (BRK.B) ), $9.7 billion deal for Occidental Petroleum's (OXY) OxyChem unit.

OXY shareholders, clearly did not like the price and headed for the exits, smashing that stock for 7.3% on Thursday, which hit the Dow Jones U.S. Exploration and Production Index (-1.43%), but new interest in chemicals as a business, pushed the Dow Jones U.S. Specialty Chemicals Index 2.15% higher. Technology (XLK) followed the Materials into the winners' circle for the day.

Losers beat winners on Thursday by just a smidgen at the NYSE, while winners beat losers by a rough 4-to-3 margin at the Nasdaq. Advancing volume took a commanding 71.6% share of composite Nasdaq-listed trade, but just a 48.4% share of composite NYSE-listed activity. As mentioned above, aggregate trading volume was reduced across the listings of both exchanges as well as across the membership of the S&P 500.

Turning Furloughs Into Layoffs

Pres. Trump is said to be considering sharply reducing federal payrolls at certain agencies as the government shutdown continues. White House press secretary Karoline Leavitt told the media that "It's likely going to be in the thousands," as the president posted to social media that he would be meeting with budget director Russell Vought to discuss the issue. Vought, who served in this same position during the first Trump administration, was one of the minds behind the Heritage Foundation's "Project 2025."

Should the shutdown continue, Speaker Mike Johnson said that the White House is "going to look to the administration's priorities and make sure they are funded." What does that mean for government outlays that do not align with the administration's priorities? Barron's did a workup on this at their website

According to analysis done by the team at Barron's the EPA or Environmental Protection Agency and the Department of Education would be at the highest risk for losing jobs permanently. The work done by Barron's shows that 89% of the staff at the EPA and 87% of the staff at Education have been furloughed, literally declaring themselves non-essential.

It's no secret that the president sees the EPA as an epicenter for politically motivated regulatory, economic burden. His feelings for the Department of Education are no secret either. Payrolls at Education are already down 40% since Inauguration Day. These numbers are in contrast to the Departments of Veterans Affairs and Homeland Security as both of those departments have furloughed less than 5% of their respective staffs. The IRS, by the way for those thinking of sneaking anything across the goaline in April, has furloughed not one individual.

Rebates ...

The president did muse about sending out taxpayer rebates of between $1,000 and $2,000 as a means of cutting taxpayers in on the tariff-created action. To be honest, though I would not turn down a "stimmy" check if other taxpayers were getting them, I would rather see anything like this that could positively impact our nation's fiscal situation, used to pay down the national debt. Tariffs are estimated (depending on who you listen to) to produce revenue of $350 billion to $550 billion annually. The federal debt stands at almost $37.8 trillion or 124.65% of gross domestic product as I type.

Bessent Talks

Treasury Sec. Scott Bessent appeared on CNBC on Thursday morning. After admitting that this shutdown will damage GDP, he spoke more about trade relations and China. Bessent insinuated that this coming Tuesday, the administration will announce "significant" support for U.S. farmers as China has not purchased U.S. soybeans as expected.

Bessent added that almost every trade deal with China under discussion includes some commitment to purchase U.S. soybeans rather than buying this "essential" crop from Brazilian and Argentine farmers. The next deadline for the U.S. and China to come to a deal or again delay that deadline or actually implement much higher tariffs is set for Nov. 10 (The U.S. Marine Corps' 250th birthday). Presidents Trump and Xi are expected to meet in late October at the Asia-Pacific Economic Cooperation summit in South Korea.

News

Apple (AAPL) announced on Thursday evening that the firm was removing ICEBlock and other apps from its app store that can be used to anonymously report sightings of ICE agents. The Dallas shooter that attempted to ambush ICE agents last week and instead shot three migrants, actually killing one before taking his own life, was apparently using at least one of these apps.

Breakouts

I know, the quantum computing stocks have all more or less been red hot. Two, in particular, appear to be, at the moment, breaking out from a breakout. D-Wave Quantum (QBTS) and Rigetti (RGTI) , which I recently discussed here, are breaking out this week in a way that seems to be an exaggeration of the still incredible performance by IonQ (IONQ) and Quantum Computing (QUBT) . Check out these two breakouts from already in-place upward sloping trends illustrated using Raff Regression models...

QBTS

RGTI

September Employment Situation

(8:30 a.m. ET)

Non-Farm Payrolls: Expecting 47K, Last 22K.

Unemployment Rate: Expecting 4.3%, Last 4.3%.

Underemployment Rate: Expecting 8.1%, Last 8.1%.

Participation Rate: Expecting 62.3%, Last 62.3%.

Average Hourly Earnings: Expecting 3.7% y/y, Last 3.7% y/y.

Average Weekly Hours: Expecting 34.2, last 34.2 hours.

Economics

(All Times Eastern)

9:45 - S&P Global Services PMI (Dec-F): Flashed 53.9.

10:00 - ISM Non-Manufacturing Index (Dec): Expecting 52.0, Last 52.0.

1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 549.

1:00 - Baker Hughes Oil Rig Count (Weekly): Last 424.

The Fed