US, European stocks hit record highs as investors shrug off US shutdown impact

Global stocks gained and gold traded near record highs on Thursday as investors took in their stride the potential ramifications of a U.S. government shutdown, while a weak private U.S. labor market report bolstered bets for Federal Reserve rate cuts, News.Az reports citing Reuters.

Investors have been largely sanguine about the shutdown’s impact on the markets and economy, helped by data of past shutdowns that showed limited fallouts. Morgan Stanley, for example, said U.S. share prices have risen an average 4.4% while real U.S. economic growth has expanded 2.2% during shutdowns in the past.

Instead, investors are focused on how much the Federal Reserve might lower interest rates this year, and whether the roaring U.S. stock market is due for a short-term pullback in the near future.

Nicholas Colas and Jessica Rabe, co-founders of DataTrek Research, said sector sub-indices for the S&P 500 index (.SPX), are showing a marked correlation with downside risks.

“Every other time they have done so since 2023, the S&P has declined by 5-18% in the following weeks,” Colas and Rabe said. “This is not an outright ‘sell’ signal, but history says to be selective here.”

The S&P 500, which has risen 14% so far this year, was flat after briefly touching a record high of 6,731.94 points. The Nasdaq Composite (.IXIC), gained 0.4% after also hitting an all-time high of 22,900.60 points, while the Dow Jones Industrial Average (.DJI), added 0.2%.

A protracted U.S. government shutdown could mean that the release of key official data on employment and inflation is delayed or disrupted, clouding the picture on the health of the world’s biggest economy and the path for interest rates.

A monthly payrolls report seems unlikely now to be released on Friday, putting an ADP employment report that showed the economy unexpectedly shed jobs in September into sharper focus. Traders are now pricing in two quarter-point Fed rate cuts by the end of the year as almost a done deal.

“I hope they sort this out rapidly,” said Kevin Thozet, investment committee member at asset manager Carmignac, referring to the government shutdown, adding that inflation data was also due ahead of the Fed’s next meeting. “It’s like a blind man walking with a blind dog,” he said.

News.Az