U.S. equity markets have bucked the weak September seasonality trend (thus far) and rallied to fresh highs this month, with the S&P 500 holding onto a 2.8% monthly gain as of September 26. The melt-up has been underpinned by the Federal Reserve ( ) delivering on rate cut expectations without any hawkish surprises, earnings optimism, and continued support of the artificial intelligence (AI) secular growth theme. Economic data has also mostly surprised to the upside this month, including last week’s upward revision to second-quarter (supported by an unexpected jump in ) and a drop in weekly . Friday’s Core Personal Consumption Expenditures Price Index ( , the Fed’s preferred inflation gauge) matched expectations, while personal spending came in stronger than expected. However, the market appears to be transitioning back into a good news is bad news backdrop, where signs of economic strength dampen expectations for future rate cuts. The threat of a U.S. government shutdown and new tariff announcements from the White House acted as a further overhang, with investors de-risking throughout most of the week, leaving the S&P 500 with a modest loss of 0.3%.
On the Brink of a Shutdown
Congress has until October 1 to reach a deal to avoid a government shutdown, an unlikely scenario given the cancellation of a meeting on Thursday between President Trump, Senate Democratic Leader Chuck Schumer, and House Democratic Leader Hakeem Jeffries. Republicans have proposed voting on a “clean” seven-week continuing resolution, which would provide additional time for negotiations on full-year spending bills. Democrats insist they will not pass a spending bill unless it includes concessions on health care, including the rolling back of the White House’s Medicaid cuts, and an extension of the Affordable Care Act insurance subsidies. In addition to furloughing workers during a potential shutdown, the Office of Management and Budget (OMB) announced last week that executive agencies should consider permanent cuts to federal employees working in discretionary areas “not consistent with the President’s priorities.
Equity Market Melt-Up Cools as Government Shutdown Looms
