401(k) warning as Wall Street trades blind with ‘rumor’ replacing key data in shutdown

Wall Street will be forced to trade in the dark this week as a partial government shutdown halts the release of critical economic data. 

Paul Donovan, the global chief economist for Union Bank of Switzerland (UBS), warned that a lack of official data could let rumor and unreliable surveys sway markets — potentially sparking volatility that hits retirement savings and investment portfolios.

The US Labor and Commerce Departments said on Monday that if there’s a shutdown, they will stop releasing key economic data. 

This includes the vitally  important September jobs report, construction spending, and possibly August trade data. These reports guide decisions by the Federal Reserve, businesses, and investors — meaning their absence could leave markets lurching on speculation. 

Prior to Wednesday’s government shutdown, UBS’s Donovan said that if there was indeed a halt in government proceedings, the resulting disruption to economic data releases could be dire.  

‘The Bureau of Labor Statistics has confirmed that no data will be published in a shutdown. That would unfortunately allow rumor and unreliable survey evidence to gain influence over markets,’ Donovan stated on Tuesday.

‘Of course the BLS economic data is subject to quality criticism,’ he said, ‘but the problem is that the alternatives like sentiment surveys are even worse, and that’s all that markets will be left to work with in the absence of official numbers.’ 

That uncertainty directly matters for retirement savers. The monthly jobs report in particular often moves the stock market and influences the Fed’s decision on interest rates — both of which can shift the value of 401(k)s, pensions, and IRAs almost overnight. 

Donovan added that this week’s ‘political theater’ mainly served to ‘reduce the productivity of economists who have to waste time commenting on this pseudo-drama’.

Because Friday’s release will be postponed, the US job openings report may have been the last labor market update for a while — which Donovan says is not a very reliable measure: ‘it is a shame the quality of this measure is so poor.’ 

Analysts will now be making trades without important up-to-date piece of data that markets usually rely on.  

Wall Street investors have been closely watching jobs data for several months, with the hopes that it will influence the Federal Reserve’s interest rate policies. 

The Fed, which has a dual mandate to push jobs growth and limit inflation to two percent, uses its interest rates as a blunt tool.  

When inflation increases, the rate swings higher to slow down price hikes. When jobs growth cools, rates plummet to make it cheaper for businesses to borrow money and hire more workers. 

During their most recent meeting in mid-September, the Fed’s 12-person board voted to lower interest rates for the first time this year, and cited growing jobs market schisms as a potential reason for another cut. 

But now, disagreement between elected officials could get in the way of reporting the important information. 

Other scheduled data releases — including the October 15 consumer price index reading — could also pause.

Since the Fed’s last meeting, Wall Street has been on a tear, believing that the next vote would bring even more cuts, making it easier to spend and invest cash. 

However, the bank’s chairman, Jerome Powell, said the vote was tricky, following August data that showed more Americans were lining up at unemployment offices, and prices at grocery stores, mechanic shops, clothing retailers, and restaurants had jumped. 

‘The unemployment rate is low but has edged up,’ he said. ‘Job gains have slowed, and the downside risks to employment have risen.

‘In recent months, it has become clear that the balance of risks has shifted, prompting us to move our policy stance closer to neutral at our last meeting.’