Wall St Futures Rise as Government Shutdown Averted

U.S. stock index futures inched up on Monday as a last-minute government funding bill averted a shutdown, while optimism about cooling inflation started the holiday-shortened week on a positive note. The U.S. Congress passed spending legislation early on Saturday, minutes after the funding had expired, which could have disrupted everything from law enforcement to national parks ahead of the busy Christmas travel season.

After a solid run since the presidential election in November, Wall Street's rally hit a bump this month, especially after the Federal Reserve forecast just two 25-basis-point cuts for 2025 - down from its September view of four cuts - and raised its annual inflation outlook, a sign that the world's largest economy was in strong health. However, a cooler-than-expected inflation report on Friday eased some worries about interest-rate cuts next year, helping the three main U.S. stock indexes to bounce back.

Money markets expect roughly two 25-bps reductions in 2025, which would bring the benchmark rate to a range of 3.75% to 4.0%, from about a 3.50 to 3.75% range two weeks ago. At 05:18 a.m., Dow E-minis were up 31 points, or 0.07%, the S&P 500 E-minis were up 15.5 points or 0.26%, and the Nasdaq 100 E-minis were up 97.75 points, or 0.45%.

Qualcomm's shares rose 3% in premarket trading after a jury found its central processors are properly licensed under an agreement with UK-based Arm Holdings. Shares of Arm, which has vowed to seek a new trial, fell about 3.3%. Shares of Rumble jumped 47.3% after the video-sharing platform said it has received a strategic investment of $775 million from cryptocurrency firm Tether. Apple, the world's most valuable company, ticked up 0.5%, in line with most megacap and growth firms, taking its market capitalization just $115 billion short of $4 trillion.

Trading volumes are expected to thin, with U.S. stock markets closing early on Tuesday and shut for Christmas on Wednesday. But markets will enter a historically strong period for U.S. stocks next week. Since 1969, the last five trading days of the year, combined with the first two of the following year, have yielded an average S&P 500 gain of 1.3% - a period known as the "Santa Claus Rally", according to the Stock Trader's Almanac. The S&P 500 has jumped 24.3% so far in 2024, the Dow has climbed 13.7% and the Nasdaq has surged 30.4%.



The averted government shutdown has instilled confidence in investors, as reflected in the positive opening of Wall Street futures. This development reduces uncertainty and market volatility, as investors prefer predictability and stability. Historically, government shutdowns have had minimal impact on stock prices, with the S&P 500 Index averaging flat returns during such events. The current situation, however, is unique due to the ongoing debt ceiling debate, which could potentially disrupt markets if not resolved. Therefore, while the averted shutdown provides temporary relief, investors remain cautious about the broader economic landscape and geopolitical tensions.

The Fed's recent inflation data has sparked optimism in the market, with Wall Street futures kicking off the week higher after a government shutdown was averted. The Fed's forecast of just two 25-basis-point cuts for 2025, down from its September view of four cuts, signals a strong economy. However, a cooler-than-expected inflation report on Friday eased worries about interest-rate cuts next year, helping the three main U.S. stock indexes to bounce back. Money markets now expect roughly two 25-bps reductions in 2025, which would bring the benchmark rate to a range of 3.75% to 4.0%. This suggests a more dovish stance from the Fed, which could boost market sentiment and stock performance in the coming weeks.

The government funding resolution averted a shutdown, which could have disrupted everything from law enforcement to national parks ahead of the busy Christmas travel season. This resolution is expected to keep the government open until March, providing near-term stability and reducing uncertainty. Historically, government shutdowns have had minimal impact on stock prices, with the S&P 500 Index averaging flat returns during such events. However, the current situation is unique, with the battle over government funding centering on concerns over the country's growing debt problem. The debt-to-GDP ratio has been increasing, reaching 128% in 2024, up from 108% in 2020. Higher debt levels and higher interest rates have led to increasing debt-servicing costs, which could impact economic growth in the long term. In the near term, the resolution should provide market stability, but investors should remain vigilant about the growing debt problem and its potential long-term impacts on economic growth.

Labor market dynamics and wage inflation trends can significantly impact corporate earnings and stock performance. As unemployment rates decline and wages increase, companies face higher labor costs, which can erode profit margins. This is particularly relevant for sectors with high labor intensity, such as retail and hospitality. However, companies with strong pricing power or cost-cutting initiatives may mitigate these effects. Additionally, wage inflation can boost consumer spending, benefiting companies in the consumer discretionary sector. In the coming weeks, investors should monitor wage growth and unemployment data to gauge the potential impact on corporate earnings and adjust their portfolios accordingly.