U.S. Stock Market Holds Steady After Early Losses as Shutdown Drama Unfolds

U.S. stocks closed mixed on Wednesday, clawing back from early declines triggered by Washington’s budget deadlock and the start of a government shutdown.  By the afternoon session, major indexes were hovering close to unchanged, reflecting a tug-of-war between political uncertainty and shifting rate expectations.

The Dow Jones Industrial Average inched up 26 points, or 0.1%, to 46,423.94. The S&P 500 slipped 3.56 points, or 0.1%, to 6,684.90, while the Nasdaq Composite edged down 21 points, or 0.1%, to 22,638.69.

Shutdown Headlines Meet Wall Street Optimism

The morning selloff followed confirmation that the U.S. government had officially entered a shutdown after lawmakers failed to agree on a short-term funding plan. At the heart of the impasse: Democrats are pushing to extend enhanced Obamacare tax credits, while Republicans want that fight postponed until after a funding bill passes.

Despite the messy politics, Wall Street sentiment improved as traders shifted focus to the Federal Reserve. Hopes that softer labor data could ease pressure on the Fed’s policy path helped stocks bounce off their lows.

Weak Jobs Data May Influence Fed

Private payrolls data added fuel to speculation of a more dovish Fed stance. ADP reported that private sector jobs fell by 32,000 in September, a surprise drop compared to expectations for a 50,000 gain. This comes after a revised decline of 3,000 in August.

Economists warn that if the shutdown drags on and delays the Labor Department’s monthly jobs report, the ADP release could carry extra weight for the Fed’s upcoming rate decision.

Bill Adams, Chief Economist at Comerica Bank, explained:

“If the Fed doesn’t get access to official jobs numbers before their meeting, this ADP miss could loom large in shaping policy.”

Market Resilience in Past Shutdowns

Historically, shutdowns have had little long-term effect on Wall Street. Jeff Buchbinder, Chief Equity Strategist at LPL Financial, pointed out:

“On average, the S&P 500 has been flat during past shutdowns, with a slightly better chance of rising than falling.”

Since 1980, the largest single decline during a shutdown was just 2.2%, suggesting history is on the side of investors betting on stability.

Sectors in Focus

• Pharmaceuticals extended gains, with the NYSE Arca Pharma Index jumping 3.8% to its best level in more than six months.
• Biotech stocks surged as well, with the NYSE Arca Biotech Index climbing 2.7% to fresh record highs.
• Computer hardware, healthcare, and gold miners also advanced, while brokerage firms came under selling pressure.

Global and Bond Market Moves

Overseas, Asian markets traded mixed. Japan’s Nikkei 225 fell 0.9%, while South Korea’s Kospi added 0.9%. Markets in mainland China and Hong Kong were closed for holidays.

In Europe, equities leaned positive: Germany’s DAX rose 0.8%, while France’s CAC 40 and Britain’s FTSE 100 both gained 0.9%.

Meanwhile, U.S. Treasury yields eased as investors sought safety in bonds. The benchmark 10-year yield fell 4 basis points to 4.11%, reversing some of last week’s upward momentum.

Make money without lifting your fingers: Start using a world-class auto trading solution.

EightCap, your trusted Partner in CFDs, Cryptocurrencies and Stocks.