The cross currents are huge. The Atlanta Fed’s GDP Now model is projecting a 4.0% GDP for the third quarter of 2025. This signals economic expansion well above the long-term historical average of 3.2%. How accurate is this forecast given the government shutdown?
A private sector consumer sentiment survey was released Friday indicating sentiment has decline to more than a three-year low as the government shutdown and high prices soured views about personal finances. The Survey’s results were weaker than all but one Bloomberg estimate.
While inflation expectations eased over the longer term…rising 3.6% annual rate over the next five to 10 years, a three-month low—the current expectations edged up again for the next year.
The drop in sentiment was across all demographics, but the drop was the most pronounced by those who identify as Democrats as confidence for this group slid to the lowest in data back to 1984.
Commenting about crypto, it took just over a month for cryptocurrencies to erase almost all the year’s gains. Crypto peaked on October 6. Utilizing Bitcoin as a proxy, Bitcoin was up as much as 35% YTD. It is now almost unchanged.
Last week, Bitcoin fell almost 10%, putting it on track for its worst weekly performance since March.
Speaking of poor weekly performances, fueled by a rout in AI names, the NASDAQ 100 had its worst week since the April tariff induced selloff when the index entered a bear market.
This week’s slide comes at a time when earnings season is winding down, with the markets becoming reliant on private data amid a dearth of economic figures from the government.
And then there is the Treasury market. Volatility rose this week as conflicting private-sector data on the health of the labor market left expectations for another interest rate cut in limbo.
Signs of labor mark weakness—the justification for the Fed rate cuts in September and October—may be abating. The market had fully priced in a cut in December but following the October Fed meeting and comments made by FRB Chair Powell stating, “a cut is not a forgone conclusion” and recent private sector data has now significantly lowered the odds.
Thew yield curve steepened considerably last week. The market will face several tests of underlying demand with the auctions of three—and 10-year notes and 30-year bons totaling $125 billion. The first auction is today.
Last night the foreign markets were up. London was up 0.96%, Paris up 1.47% and Frankfurt up 1.87%. China was Japan up 1.26% and Hang Seng up 1.55%.
Dow and NASDAQ futures are up 0.45% and 1.25%, respectively, on a tentative plan to reopen the government. The 10-year is off 8/32 to yield 4.15% for the same reason.
