Markets Climb as Investors Look Past Government Shutdown

Markets Climb as Investors Look Past Government Shutdown

Major U.S. and international indexes advanced last week, despite the U.S. government officially shutting down at midnight Tuesday after lawmakers failed to reach a funding agreement. Global equities, as measured by the MSCI All Country World Index (ACWI), gained 1.72%, while U.S. equities, represented by the S&P 500, rose 1.11%. For the quarter, markets delivered strong total returns across all major asset classes, with the S&P 500 finishing up more than 8% and the MSCI ACWI just below that level. U.S. small-cap stocks led performance, with the Russell 2000 advancing more than 11% for the quarter.

Government Shutdown

As mentioned previously, the government officially shut down at 12:01 AM Wednesday after both Republican and Democratic funding proposals failed in the Senate. The immediate impact includes a halt to nonessential government operations, widespread furloughs, and a pause in key public services. For investors, perhaps the most consequential effect is the suspension of critical economic data releases, such as inflation and employment reports, that markets and the Federal Reserve rely on to guide policy decisions.

Labor Market

With the shutdown delaying the much-anticipated Friday jobs report, investors turned to alternative data such as the ADP private payrolls, which will carry more weight despite its historically weak correlation with government figures. The latest ADP report showed payrolls falling by 32,000 in September, the third decline in four months, reinforcing the cooling labor trend that has caught the Fed’s attention. The unemployment rate remains relatively low at 4.3%, but job openings have dipped below the number of unemployed workers for the first time since 2021. Companies appear increasingly cautious on hiring amid economic uncertainty and expectations of AI-driven productivity gains, yet layoffs remain limited as firms continue to operate profitably without aggressive cost cuts.

Market News

Other notable market news: Alternative assets rallied, with Bitcoin and gold both advancing amid the government shutdown. Bitcoin surged to its highest level since mid-August, rising roughly 11% for the week, while gold climbed for a seventh consecutive week to a record above $3,900 per ounce. In contrast, concerns over potential global oversupply pushed U.S. crude oil to a four-month low near $61 per barrel, down 7% for the week. Market volatility also ticked higher, with the Cboe Volatility Index (VIX) closing at 16.7, up from 15.3 the prior week, though still well below its year-to-date peak of 52.3 on April 8.

Looking Ahead

It was expected to be a busy week for economic data, including the release of the September Federal Reserve meeting minutes, wholesale inventory data, and weekly unemployment claims. However, all of these reports could be delayed due to the government shutdown. The one data point still scheduled for release is the University of Michigan Index of Consumer Sentiment, set to be published on Friday.

As Always

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.