Monday, November 3, 2025

♟ Trading In a "Data Fog"

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Image of the Capitol building with a closed sign hanging on it.

"As we get into unprecedented shutdown territory, the data fog could start to become more of an issue, which is another reason I'd prefer to get defensive."

Bryan Bottarelli, Head Trade Tactician, Monument Traders Alliance

Bryan Bottarelli

Dear Reader,

As of this writing, the U.S. government remains shut down...

And yet it seems like Wall Street couldn't care less.

It's quite telling to see the major market indexes hit fresh highs - all while our policymakers are sidelined.

What does that say about their perceived effectiveness - or even usefulness?

It's a little pathetic when the less work our elected officials do - the better the stock market performs.

How long can this last?

I'm not entirely sure - but we're soon going to test the longevity of this relationship.

Especially when it comes to reported economic data.

No Economic Data Leaves Us In a "Data Fog"

The government shutdown, which is now entering its fifth week, means that we have not received any official government data on Q3 real GDP, consumer income and spending, and PCE inflation (among other indicators).

The inability to gauge the health of the economy has now left us in a "data fog."

Previous shutdowns have typically led to a 0.1% to 0.2% hit on GDP growth for every week that they last.

Wall Street also knows that economic activity mostly recovers after the shutdown ends - which is why the stock market disruption (thus far) has been short-lived background noise.

But really, how long can the markets shrug this off?

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As we get into unprecedented shutdown territory, the data fog could start to become more of an issue, which is another reason I'd prefer to get defensive...

If you look closely, the downside has already started in homebuilders.

Even with the recent dip in mortgage rates, homebuilding stocks have pulled back more than 16% from their September highs.

Yes, rates are lower, but that is because cracks are emerging in the labor market.

D.R. Horton just reported a decline in its quarterly profits. Pending home sales (which is a bellwether indicator) came in flat in September - versus a consensus forecast of 1.2%. Stagnant home sales and economic uncertainty could lead to more downside, which is why I'd prefer to bias this sector lower.

Chart: Homebuilders ETF a Defense Play As Shutdown Continues
 

The SPDR S&P Homebuilders ETF (XHB) could soon break below $100.

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