The October 2025 government shutdown delayed key economic data releases but did not stop markets from reaching record highs despite government disruption. By October 10, financial markets hit fresh all time highs amid, with U.S. equity benchmarks reaching record highs despite the shutdown. Gold broke through $4,000 per ounce for the first time in history, and bond funds posted their strongest year-to-date returns in over a decade.
Market Performance Amid Government Disruption
On October 7, the S&P 500 closed at 6,740.28—its seventh consecutive daily gain and a new record. The Nasdaq Composite ended at 22,941.67, also an all-time high. The Dow Jones Industrial Average slipped 0.1 percent to 46,694.97, but the Russell 2000 small-cap index recovered to its prior peak.[1][2]
Key market movements include:
- Gold climbed to $4,015.59 per troy ounce on October 10, extending its 2025 rally to more than 50 percent.
- Gold briefly touched $4,059 during overnight trading on October 8, marking the first breach of the $4,000 threshold.[3][4]
- The iShares U.S. Aggregate Bond Index Fund reported a year-to-date total return of 6.09 percent through October 9, the best annual performance since 2019.[5]
Read More: US stocks and gold retreat from record highs as Wall Streets rally pauses
Valuation Concerns Intensify
Equity valuations have expanded faster than corporate earnings. Highlights include:
- S&P 500 forward 12-month price-to-earnings ratio: 24.05 as of October 10 (down from 2024 peak of 28.12, still above historical median of 18.17).[6]
- Shiller cyclically adjusted P/E ratio remains near dot-com bubble levels.
- Small-cap stocks, especially unprofitable growth names, face high downside risk if investor sentiment shifts or earnings disappoint.[7]
Corporate Earnings Must Justify Prices
Analysts project S&P 500 earnings per share will rise 8.0 percent year-over-year in Q3 2025. Companies must meet or exceed consensus estimates and provide optimistic 2026 guidance. Key considerations:
- Major financial institutions, technology giants, and consumer-facing companies report results throughout October.
- Sustaining current share prices depends on meeting earnings and providing forward guidance.[8]
Federal Reserve Rate Path
The Fed reduced its benchmark rate by 25 basis points in September to 4.00–4.25 percent, the first cut since December 2024. Despite government shutdown delays, markets reach record highs levels as investors anticipate the impact of lower borrowing costs. Equity benchmarks reached record highs amid government shutdown concerns, with markets pricing in a 98% probability of another quarter-point reduction at the October 28–29 meeting.
Key developments and expectations:
| Event / Indicator | Details |
|---|---|
| Rate-cut forecast | Bank of America moved forecast from December to October due to softening labor data |
| Additional cuts | Two more quarter-point reductions expected by mid-2026; fed funds rate projected at 3.75–4.00% |
| Data impact | Government shutdown suspended jobs report and other economic releases; Fed relies on alternative labor signals |
| Market risk | Delayed data could amplify volatility as traders adjust rate-cut expectations without official confirmation[11] |
Artificial Intelligence Sector Performance
A Morningstar index tracking 38 AI-related stocks gained 15.7% in Q3 2025, more than double the S&P 500 return. Notable performers:
- Corning: +53.25%
- Teradyne: +49.54%
- Arista Networks: +40.13%[12]
Additional context:
- Technology services market reached $32 billion in annual contract value in Q3.
- Growth driven by a 31% year-over-year surge in as-a-service (XaaS) offerings.
- Cloud migration and AI deployment remain critical for productivity gains and profit growth into 2026.[13]
Historical Context and Outlook
Past government shutdowns had minimal lasting impact on equity markets:
- 2013 shutdown: 16 days, S&P 500 fell 3% but recovered within two weeks.
- 2018–2019 shutdown: 35 days (longest), coincided with 9% market decline, though macroeconomic factors were larger contributors.[11]
Investors are balancing three key drivers:
- Continued AI-driven productivity gains.
- Expectations for lower borrowing costs.
- Elevated valuations that leave little room for disappointment.
Additional context:
- Gold’s historic rally reflects inflation concerns and geopolitical uncertainty.
- Bond gains indicate confidence that the Fed will manage a controlled economic slowdown without triggering a recession.[3][9][14]
