The S&P 500 edged lower from record levels on Friday but still managed to log solid weekly gains, even as the U.S. government shutdown extended into its third day. The benchmark index ended nearly flat, rising just 0.01% to 6,715.79, while the Nasdaq Composite slipped 0.28% to 22,780.51. The Dow Jones Industrial Average gained 238.56 points, or 0.51%, to close at 46,758.28, and the small-cap Russell 2000 advanced 0.72% to 2,476.18. All four indexes had touched all-time highs earlier in the session.
Tech weakness weighs on afternoon gains
Stocks gave back some momentum in afternoon trading as declines in major technology names dragged the broader market lower. Palantir Technologies led the pullback, tumbling 7.5%, while Tesla and Nvidia fell more than 1% and nearly 1%, respectively. The CBOE Volatility Index (VIX) spiked, indicating that investors were seeking downside protection through put options amid uncertainty about near-term market direction.
Markets post weekly gains despite shutdown concerns
Despite Friday’s late-session weakness, all major indexes finished the week in positive territory. The S&P 500 and the Dow each rose about 1.1%, while the tech-heavy Nasdaq gained 1.3%. The Russell 2000 outperformed with a 2% weekly rise.
Investors appeared largely unfazed by the government shutdown, which, while extending into a third day, has so far been viewed as a temporary setback rather than a significant economic threat. Market participants expect the shutdown to be short-lived and unlikely to derail momentum in sectors such as artificial intelligence, which continue to drive investor enthusiasm. Historically, shutdowns have had minimal long-term impact on markets.
Data blackout complicates Fed outlook
The shutdown has effectively triggered an economic data blackout, as the Labor Department suspended nearly all operations, including the release of the September nonfarm payrolls report. While this removes a potential source of pressure on equities, it also leaves the Federal Reserve with less data to guide its next interest rate decision at the October meeting. According to the CME FedWatch tool, markets are currently pricing in a quarter-point rate cut.
Adding to concerns about the labor market, President Donald Trump has signaled potential large-scale federal layoffs, calling the shutdown an “unprecedented opportunity” to reduce the size of government. Treasury Secretary Scott Bessent warned the funding lapse could “hit GDP, growth, and working America.” The Congressional Budget Office estimates roughly 750,000 federal workers will be furloughed each day during the shutdown.
Weak labor data strengthens case for Fed cut
Recent labor market data has amplified expectations for a Fed rate cut. ADP’s private payrolls report showed the largest monthly decline since March 2023, underscoring signs of a cooling jobs market. Many analysts believe this, combined with the shutdown, bolsters the argument for further monetary easing.
“We view September’s mixed, private-sourced substitutes for the Labor Department’s delayed jobs report as soft enough to justify another interest-rate cut by the Federal Reserve at the October 29 FOMC meeting,” said Jennifer Timmerman, senior investment strategy analyst at Wells Fargo Investment Institute. “The prospect of continued rate reductions, reinforced by the latest labor data, has fueled the equity rally and kept the 10-year Treasury yield at 4.11%, helping lift the S&P 500 to new record highs.”
