Investors breathed a sigh of relief on Wednesday morning, as US stock futures indicated a higher open for the major indexes. The positive sentiment came after the House of Representatives approved a bill late Tuesday night that would fund the government through December 3, averting a potential shutdown that could have disrupted the economy and the markets.
The bill, which passed by a vote of 220 to 211, with no Republicans supporting it, now heads to the Senate, where it faces an uncertain fate. The Senate must act by Thursday night to prevent a lapse in federal funding that would affect millions of workers and services. The bill also includes a suspension of the debt ceiling until December 2022, which would allow the government to continue paying its bills and avoid a default that could trigger a global financial crisis.
However, some Republican senators have vowed to block the bill, arguing that raising the debt limit would enable more spending by the Democrats, who are pursuing a $3.5 trillion social and environmental package. The Democrats have said they will not negotiate with the Republicans over the debt ceiling, which they say is a bipartisan responsibility that has been raised dozens of times under both parties.
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The impasse over the debt ceiling could overshadow the positive news from the House vote, which lifted some of the uncertainty that has weighed on the markets in recent weeks. The Dow Jones Industrial Average futures rose 0.4%, while the S&P 500 futures and the Nasdaq 100 futures gained 0.5% and 0.6%, respectively, as of 6:30 a.m. ET Wednesday.
The market rally also reflected optimism about the economic recovery, as data showed that consumer confidence rebounded in September after a sharp drop in August. The Conference Board’s consumer confidence index rose to 109.3 from 115.2 in August, beating expectations of 115.0. The index measures consumers’ assessment of current economic conditions and their outlook for the next six months.
The improvement in consumer confidence could bode well for consumer spending, which accounts for about 70% of US economic activity. Consumer spending has been resilient despite the surge in Covid-19 cases due to the Delta variant, which has dampened business activity and hiring. The Commerce Department reported on Tuesday that personal income rose 0.2% in August, while personal spending increased 0.8%, both beating estimates.
The market will also be watching for new clues on the Federal Reserve’s monetary policy plans, as Fed Chair Jerome Powell testifies before the House Financial Services Committee. Powell is expected to reiterate his message from last week’s Fed meeting, where he said that the central bank could start tapering its $120 billion monthly bond purchases as soon as November, if the economy continues to improve.
However, he also stressed that tapering does not mean tightening, and that interest rates will remain near zero until inflation and employment reach the Fed’s goals. Investors will get more clues about the state of the economy from the ADP private payrolls report, which is expected to show that employers added 428,000 jobs in September, up from 374,000 in August.
The report is seen as a precursor to Friday’s nonfarm payrolls report, which is one of the most closely watched indicators of the health of the labor market and the recovery. The consensus estimate is for 488,000 jobs added in September, down from 235,000 in August. The unemployment rate is expected to drop to 5.1% from 5.2%. Other data on tap for Wednesday include the final reading of second-quarter GDP growth, which is expected to be unchanged at 6.6%, and pending home sales for August, which are expected to rise by 0.4% after falling by 1.8% in July.
