Last week was pretty quiet relative to the past few months. Equities, bonds and commodities experienced relatively small price moves for the week, and overall volatility fell. Since the Federal Reserve (Fed) announcement in mid September, 13 of 17 Fed governors have come out saying that they expect a tightening prior to year end. This is a reversal from the markets' reaction to the Fed decision to hold rates steady. U.S. economic data continues to point to moderate growth. Janet Yellen's speech on Thursday evening provided markets with hope that the economy is still improving.
This week, markets will have to deal with the brinksmanship involved in a potential government shutdown. I expect the shutdown to be averted, but if it does happen, I expect a negative market reaction. Two key pieces of economic data will be released this week. On Thursday, the ISM manufacturing index should show continued expansion, and, on Friday, the September employment report will be released. I expect the employment report to confirm the strength in the labor market.
I expect market volatility to continue to be low relative to the last few weeks, but any surprises could upset a jittery market.
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