Since October 1st, the US government has officially shut down, as the two parties failed to reach a budget agreement at the last minute, leading to approximately 900,000 federal employees facing forced furloughs, with their salaries unable to be paid on time until the government resumes operations. According to Goldman Sachs estimates, the government shutdown will affect about 40% of federal employees, creating significant uncertainty for various agencies. Surprisingly, however, the shutdown did not directly impact US stocks; instead, signs of a rebound emerged. Stocks related to artificial intelligence (AI) equipment concepts saw substantial gains, with companies like Intel and Vertiv rising over 7% each. The S&P 500 broke through the 6700-point mark, while the Dow Jones and Nasdaq indices also rose by 0.09% and 0.42%, respectively.
The market's reaction to the shutdown appears relatively calm, especially after experiencing seasonal sluggishness in September. Investors have high expectations for US stock performance in October. Several seasoned US stock traders stated that although the government shutdown would affect short-term economic data, the market's focus remains on expectations for interest rate cuts, economic data, and the continued push from the AI wave. Particularly, the performance of AI-related stocks has become a significant factor driving the rebound in US stocks.
Fiscal Impact and Political Games of the Shutdown
The US Congress failed to pass a temporary funding bill in September, resulting in a government shutdown at the beginning of the new fiscal year on October 1st. Although the Republican Party holds a majority in both chambers, the funding bill requires 60 votes to pass, leading to unresolved disagreements with the Democratic Party. Trump attempted to avoid a government shutdown through dialogue with leaders from both parties, but ultimately, the shutdown was unavoidable.
Since 1981, the US has experienced 14 government shutdowns. Expert analysis suggests that this phenomenon has become more frequent against the backdrop of intensified political opposition. However, the fiscal impact of a shutdown is relatively small. Typically, government shutdowns do not last long and often do not have a decisive impact on the national economy. Even prolonged shutdowns usually only affect the operations of some federal agencies and do not lead to a comprehensive fiscal collapse.
The risk this year lies in Trump's threat of large-scale civil servant layoffs should a government shutdown occur, which could have some impact on short-term employment data. If the shutdown persists, the release of important economic indicators such as non-farm payroll data may also be delayed, potentially causing market confusion.
The Calm Reaction of the US Stock Market and Future Outlook
Although the political risks of a government shutdown cannot be ignored, the financial market's reaction to this event has been relatively calm. The performance of the US 10-year Treasury yield and the US dollar is similar to reactions during past shutdown years, with short-term downside risks, but in the long run, the market does not seem overly concerned.
Traders generally believe that the government shutdown has a limited impact on the stock market, with the biggest risk coming from the delayed release of the non-farm payroll report. According to Goldman Sachs analysis, the shutdown may delay the release of the September employment report, and changes in this data will directly affect the Federal Reserve's monetary policy decisions. Currently, market expectations for a Fed rate cut in October remain high, with some institutions forecasting a 25-basis-point cut in October.
Meanwhile, the continuous rise in gold prices also reflects market risk aversion. On the last day of September, gold once broke through $3870, reaching a new historical high. Although it has since pulled back, it remains at a high level. The strong performance of gold is closely related to increased market expectations for rate cuts and rising demand for risk hedging.
October Market Outlook and US Stock Seasonality
Entering October, investors are hopeful about the seasonal performance of US stocks. Over the past 10 years, October has typically been a relatively positive month for gold and the S&P 500, with an average increase of about 1.5%. Especially after the tax and geopolitical risks in the first three quarters, traders hope the fourth quarter will continue the strong performance. The focus in October will be on the Federal Reserve's interest rate meeting and the release of key economic data.
If the government shutdown continues, the absence of important data will make the Fed's decision-making more difficult, increasing market uncertainty. Nevertheless, the market remains optimistic about the performance of US stocks and gold. With expectations for rate cuts continuing to heat up, investor demand for US stocks and gold may drive the market to a new round of gains in the fourth quarter.
