Blog : What We Think We Know

by Ed Zwirn on October 11th, 2013

We know one thing: Once the government returns to operation, investors are going to be hit with a barrage of economic updates that normally would have trickled out over several weeks.

First, there is the backlog: We haven't had an official government update on the jobs situation since Sept. 6, when we found out that the unemployment rate had declined slightly, from 7.4% to 7.3%, and the public and private sectors combined had added a sluggish 169,000 jobs in August and a paltry downwardly revised 104,000 the month before.

We've also already missed numbers on construction spending, retail sales and producer prices. Looking not-too-far ahead, a consumer price index report and updates on housing starts and building permits are also set to come out between now and Thursday, the supposed "drop-dead" deadline for debt ceiling negotiations.

The latest positive signals from Washington notwithstanding, there is a better-than-even chance that the debt ceiling extension vote will come as close to the Oct. 17 debt ceiling deadline as our political leaders can get away with in their game of chicken. The political deals struck would probably reopen the government as well.

The impact of the glut of information to come out after that will be muted because it will hit us at once, and because nobody expects any good news on the jobs front anyway and inflation can only trend lower as the government shutdown takes both jobs and money off the table.

But the impact of this gloomy information will also be lessened because the stock market will probably react in a euphoric, or at least relieved, fashion once the political mess gets sorted out. Penny stocks as a general asset class ought to profit from this euphoria, particularly the tech and other small-cap stocks that suffered from the most recent selloff as investors who had already won big on these speculative bets decided it may have been time to cash in.

On the other hand, the fact that the glut of information to come out soon won't move markets as much as its individual components normally would have only increases the value of these nuggets of information, if only because they won't be immediately priced into the market. The stock market will have to get back to responding to real economic conditions once the current sideshow ends, which makes getting a quick pounce on the data one way of getting ahead of the herd.