House Speaker Kevin McCarthy’s ouster raises the odds of a government shutdown later this year, and bond yields rose to 16-year highs on worries over political dysfunction and economic resilience. Here’s what investors need to know today.
1. Goldman: McCarthy Ouster Raises Threat of Government Shutdown
The historic removal of House Speaker Kevin McCarthy leaves a “leadership vacuum” in Washington that makes it unlikely Congress will be able to approve the 12 spending bills it needs before the recently passed government funding extension expires on Nov. 17, Goldman Sachs wrote in a research note. Goldman’s base case projects that a government shutdown is likely in the fourth quarter, but it’s unlikely to last more than three weeks.
2. Bond Yields Rise to 16-Year High on U.S. Political Worries
U.S. Treasury yields hit 16-year highs, pushed up by fresh jobs data that could prompt the Federal Reserve to keep interest rates high for longer than anticipated. The 30-year bond yield overnight climbed higher than 5% for the first time since August 2007, while the yield on 10-year Treasurys nearly topped 4.9%.
3. Bank Stocks Feel Pressure of Higher Yields
Banks could be on pace for yearly losses as increasing Treasury yields batter their bond portfolios and make refinancing commercial real estate loans trickier, say DBRS Morningstar analysts. On a positive note, bank reserves are at a three-decade high, which analysts say could insulate lenders from defaults and losses in the event of a recession.
4. Intel Shares Gain on Plans for IPO on Programmable Chip Unit
Shares of Intel (INTC) moved up by 2% in pre-market trading after it announced it would spin off its Programmable Solutions Group through an initial public offering within the next two to three years, which company officials said would allow the chipmaker to focus on its core business and long-term strategy.
5. Private Payrolls Expected to Fall, Factory Orders Tick Higher
Private employers are expected to have added 150,000 jobs in September, down from 177,000 in the prior month, when the ADP National Employment Report is released at 8:15 a.m. ET. At 10 a.m. ET, data is expected to show factory orders moved higher by 0.3% in August, better than the 2.1% drop in July, while the Institute of Supply Management (ISM) services index is expected to drop to 53.6% in September from August’s reading of 54.5%.