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“I didn’t know you were Catholic.” – Nancy Pelosi

Morning stock market summary

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Futures have added to earlier gains following the latest batch of economic data which included Personal Income, Personal Spending, and PCE Inflation data.  There were no notable surprises, but if there’s one headline to take from the data it was that the PCE Core Deflator finally dropped below 4% (3.9%), although the move was expected.

News headlines for the last 24 hours have been focused on the fact that Congress has been unable to pass a measure to keep the government from shutting down this weekend, which is fitting given the fact that it was fifteen years ago today that Congress couldn’t get its act together and pass the $700 billion bank bailout plan.  The bailout bill ultimately authorized and led to the creation of the Troubled Asset Relief Program, otherwise known as TARP.  In the days leading up to the Congressional vote on the plan, then-Treasury Secretary Hank Paulson reportedly got down on one knee in front of House Speaker Nancy Pelosi and begged her not to “blow it up”, leading Ms. Pelosi to reply with the quote above.

Whatever your views towards TARP are in retrospect, when Congress failed to pass the measure, an already ugly market turned Medusa-like.  As shown below in the intraday chart of the S&P 500 from that day, you don’t need a label to show you when it was that the bill failed to pass. Just as the market was starting to stabilize from a morning swoon, the bottom fell out of the bottom, and by the time the closing bell rang, the S&P 500 was down 8.8% for its largest one-day decline since the 1987 crash on 10/19/87.  Since then, there have been four other days that were worse with two more in 2008 and then two more during the COVID crash. Ironically, it was probably the market’s reaction to the bill getting voted down that enabled passage a few days later.

Historically, the last trading day of September has had a negative bias.  Over the last 50 years, the S&P 500’s median change on this day has been a decline of 0.18% with gains just 44% of the time.  Trading has been particularly weak in the last two years with declines of over 1% on the last day of September each time.  Thankfully on Wall Street this morning, the only problem traders are dealing with is flooding rains getting to and from New York City (if they’re even leaving their houses in the first place).

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