Back on January 18th, stocks made it as high as they’ve been able to make it since early December. From there, they ebbed a bit and traded sideways for several more days before reapproaching those highs last Friday. Breaking above those highs would have been technically significant (i.e. it may have served as a cue for more positive momentum). With the temporary shutdown plan announced with only hours left in the day, that made this week highly uncertain.
But rather than stampede up and over the overhead ceiling, stocks moved steadily lower overnight and then more sharply lower in the morning hours. Corporate earnings played a part as did oil price weakness and another downbeat speech from ECB President Mario Draghi. Bond markets didn’t object, and soon found themselves back in positive territory after beginning the day slightly weaker. The afternoon’s strong 5yr Treasury auction helped reinforce the gains.
All of the above is occurring well inside a fairly flat and narrow range, however, both for stocks and bonds. There’s still a major sense of uncertainty heading into this week’s scheduled events (Fed on Wed and NFP on Fri) as well as the unscheduled events (all the backlogged data from the shutdown). The latter won’t likely see the light of day this week. And while that won’t necessarily prevent markets from reacting to the Fed and NFP, it could deprive those reactions of some of their potency.
Long story short, this week has gone from “highly uncertain” on the approach to “still highly uncertain” as it gets underway.