The Dow Jones and S&P 500 indices recorded all-time highs, signaling Wall Street’s decision to brush aside concerns over the temporary government shutdown and instead focus on other economic indicators.
U.S. stocks closed slightly higher on Wednesday after the federal government officially entered its first shutdown in seven years, following lawmakers’ failure to reach an agreement on funding.
The Dow Jones rose by 43 points, or 0.09%, while the S&P 500 gained 0.34%. The tech-heavy Nasdaq Composite climbed 0.42%. Both the Dow Jones and the S&P 500 closed at new record highs.
Government Shutdown and Market Impact
The shutdown officially began at midnight, resulting in the indefinite furlough of a significant number of federal employees and creating uncertainty around the release of key economic data.
In a note, Adam Turnquist, Chief Technical Strategist at LPL Financial, stated that the shutdown adds another layer of uncertainty. However, he emphasized that such events are usually short-lived, with limited long-term economic impact.
Turnquist added that history shows the markets’ resilience during such periods. Since 1976, there have been 20 government shutdowns, with an average duration of only eight days.
Following previous shutdowns, the S&P 500 typically gained an average of 1.2% in the subsequent month and 2.9% over the following three months.
He noted that investors tend to focus more on corporate earnings and broader economic trends than on political gridlock.
That said, he cautioned that sectors such as defense and healthcare may be more vulnerable to shutdowns due to their reliance on government contracts.
Strong Stock Performance in September
The S&P 500 rose by 3.5% in September, marking its best September performance since 2010. This came amid relative investor indifference to geopolitical risks and renewed threats of protectionist policies.
Brent Schutte, Chief Investment Officer at Northwestern Mutual, emphasized that government shutdowns have historically been temporary events rather than structural market shifts. He added that the longer a shutdown drags on, the more risks it poses.
Bond Movements and Economic Indicators
U.S. bonds rallied after private payrolls data from ADP showed the private sector lost 32,000 jobs in September.
This spurred investor demand for bonds, driving down yields on 2-year, 10-year, and 30-year U.S. Treasury notes.
Diverging Investor Sentiment
Despite the broader market optimism, some analysts warn that a prolonged shutdown could have deeper ramifications.
Jennifer Timmerman, Investment Strategy Analyst at Wells Fargo Investment Institute, noted that the shutdown could trigger market volatility if it delays the release of economic data the Federal Reserve relies on to guide monetary policy.
Keith Buchanan, Senior Portfolio Manager at Globalt Investments, pointed out that the market may be underestimating the risks associated with a prolonged or more complex shutdown compared to previous instances.
Stocks Supported by Earnings and Rate Cut Expectations
The S&P 500 has seen strong performance over the past five months, driven by better-than-expected corporate earnings and investor optimism about potential rate cuts from the Federal Reserve.
Eric Theil, Chief Investment Officer at Comerica Wealth Management, said the current shutdown doesn’t pose a fundamental threat to the market, describing it as a political issue more than a market one.
He added that corporate earnings continue to provide strong support for stock prices—at least until third-quarter results are released.
Focus on Fundamental Market Drivers
Given the market’s positive momentum, investors are advised to look beyond government shutdown-related fears and instead focus on core market drivers such as:
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Continued Federal Reserve interest rate cuts,
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Strong corporate earnings, and
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Sustained investment momentum despite geopolitical and economic risks.
The overall market outlook remains positive unless the shutdown extends long enough to disrupt critical economic infrastructure or restrict access to key data required for policymaking. As for when this will all end—that remains uncertain.
