Markets Hit Record Highs Despite Washington Shutdown Stalemate

Global markets surged Thursday, shrugging off political drama in Washington as U.S. lawmakers failed to resolve the government shutdown. Stocks climbed to new records while gold traded near its highest levels ever, buoyed by expectations of Federal Reserve rate cuts after a weaker-than-expected labor market report.

Investors appear largely unfazed by the shutdown, pointing to historical data that shows limited market fallout during past government closures. Morgan Stanley noted U.S. shares have historically risen an average of 4.4% while economic growth expanded 2.2% during prior shutdowns. Market participants are instead focused on the Fed’s policy path and whether the recent rally could face a short-term pullback.

Nicholas Colas and Jessica Rabe of DataTrek Research warned that sector correlations in the S&P 500 suggest downside risks. “Every other time they have done so since 2023, the S&P has declined by 5-18% in the following weeks,” they said. “This is not an outright ‘sell’ signal, but history says to be selective here.”

The S&P 500 has already gained 14% this year. It hovered flat on Thursday after touching a record 6,731.94 points. The Nasdaq Composite rose 0.3%, hitting an all-time high of 22,900.60, while the Dow Jones Industrial Average was little changed.

One consequence of a prolonged shutdown could be disruptions to key government data releases. The monthly payrolls report, for instance, is unlikely to be released on Friday. That leaves investors reliant on private-sector data such as ADP’s report, which showed U.S. employers unexpectedly shedding jobs in September. Traders responded by pricing in two quarter-point Fed cuts by year’s end.

“I hope they sort this out rapidly,” said Kevin Thozet of Carmignac. “It’s like a blind man walking with a blind dog,” he added, warning that without inflation and jobs data, the Fed’s decision-making grows murkier.

Overseas, the MSCI world index rose 0.1% while European stocks hit new highs, gaining 0.5%. In Asia, tech stocks led gains after Samsung and SK Hynix announced partnerships to supply OpenAI’s expanding data centers.

Gold prices eased 0.5% to $3,895.09 after reaching another record overnight. Analysts say momentum still favors bulls. “Fresh highs are likely to beget yet more fresh highs,” said Michael Brown of Pepperstone, adding that precious metals remain supported by Fed easing bets.

Bond markets reflected shifting expectations. The two-year Treasury yield fell to 3.531%, a two-week low, before stabilizing at 3.5449%.

Currencies were steady. The dollar index stayed near a one-week low of 97.459, last at 97.864. The dollar was unchanged at 147.165 yen after Bank of Japan Deputy Governor Shinichi Uchida signaled conditions were aligning for another rate hike. The euro slipped 0.1% to $1.1717, and sterling fell 0.3% to $1.3441.

Oil prices extended their losing streak to a fourth straight session amid concerns of oversupply. Brent crude dropped 1.8% to $64.18 per barrel, while U.S. West Texas Intermediate crude declined 1.9% to $60.60.