Yesterday marked a fairly big adjustment in the Fed’s monetary approach to the same old underlying economic realities that were in place at the time of their last meeting. Granted, we have had the government shutdown come and go in the intervening time, but that’s about it, and the Fed said they don’t expect any lasting GDP impact there.
So while the Fed CAN move markets because it’s acting as some sort of bellwether for underlying economic realities (i.e. “if the Fed’s worried, I’m worried too!), in this case, the Fed is moving markets simply because it changed the lens through which it’s viewing those economic realities and this lens is much friendlier for both sides of the market.
If traders were genuinely viewing the Fed announcement as a wake-up call about economic risks, stocks would have a tougher time making the gains we’re seeing. That’s not to say there aren’t valid underlying economic uncertainties, but those can only be sorted out with the arrival of new economic data.
With that in mind, we get the most important economic data of the month tomorrow morning in the form of the jobs report. Given the nature of the current market reaction (i.e. the fact that it’s based on the Fed’s lens and not what the Fed is actually looking at), what the Fed is actually looking at stands a bigger-than-average chance to set the tone for the next move. That makes tomorrow morning risky–especially because it would stand to reason that traders could likely overlook a certain amount of NFP weakness due to the uncertain impacts of the government shutdown.