What's Happening?
The S&P 500 reached a new record high despite the ongoing U.S. government shutdown, which has entered its second day. The index was up 0.3% at its peak, while the Dow Jones Industrial Average climbed 48 points, or 0.1%, and the Nasdaq Composite rose 0.3%, supported by gains in Nvidia shares. Treasury Secretary Scott Bessent warned that the shutdown could negatively impact the gross domestic product, raising concerns among investors about the U.S. economic performance. The shutdown began after Democrats and Republicans failed to agree on a funding deal, with Democrats insisting on extending health care tax credits. President Trump commented that the shutdown offers an opportunity to cut federal agencies.
Why It's Important?
The government shutdown has historically had minimal impact on the stock market, but the current situation is being closely watched due to volatile policy and macroeconomic conditions. The AI-led rally and ongoing inflation concerns add to the uncertainty. President Trump's threat of permanent mass firings of federal workers during the shutdown exacerbates worries about the labor market. Investors are concerned about how long the stalemate will last, with the Senate out of session for Yom Kippur, delaying further votes. The shutdown has also led to an economic data blackout, affecting the release of the September nonfarm payrolls report.
What's Next?
The shutdown is expected to continue for at least three days, with prediction markets suggesting it could last nearly two weeks. The Federal Reserve is anticipated to announce an interest rate cut at its upcoming October meeting, following a drop in private payrolls. Investors are closely monitoring the situation, as prolonged shutdowns could have more significant economic repercussions.
