The trading week concluded with markets displaying remarkable resilience in the face of Washington dysfunction, as major indices closed at fresh record highs despite a federal government shutdown that began October 1st at midnight. This performance speaks to the sophisticated way investors have learned to distinguish between political theatre and genuine economic headwinds.
The Dow Jones Industrial Average rose 43 points, or 0.09%, while the S&P 500 climbed 0.34% and the tech-heavy Nasdaq increased 0.42% on October 2nd, with both the Dow and S&P 500 closing at record highs. Yet these gains arrived not despite the shutdown but rather because markets have repeatedly demonstrated that such political impasses typically produce minimal economic impact, particularly when the underlying fundamentals remain sound.
What made this week particularly noteworthy was the contrast between Washington’s paralysis and the market’s forward-looking optimism. On September 30th, the Dow climbed 68.78 points, or 0.2%, to close at 46,316.07, while the Nasdaq added 107.09 points, or 0.5%, to close at 22,591.15. The S&P 500 had its best September in 15 years, fuelled by optimism over artificial intelligence and lower rates, setting the stage for continued strength as October trading began.
The economic data that emerged this week painted a more nuanced picture than the headline market strength might suggest. US private-sector businesses lost 32,000 jobs in September according to the ADP report, with August’s previously estimated 54,000 payroll gains downwardly revised to negative 3,000. This surprising decline represents the weakest private employment reading since March 2023 and adds to growing concerns about labour market momentum.
Annual pay rose 4.5 percent year-over-year in September, suggesting that wage pressures remain elevated even as job creation falters. This combination of weakening employment alongside persistent wage growth creates a complex backdrop for Federal Reserve policymakers as they navigate the path forward on interest rates following their recent easing cycle initiation.
Perhaps most telling about current market psychology is the relative calm with which investors absorbed both the shutdown and the weak employment data. Rather than triggering defensive positioning or broad-based selling, these developments were met with measured assessment. This suggests a market comfortable with its fundamental thesis: that the economy is cooling gradually rather than collapsing, supporting the Fed’s case for continued policy normalization without necessitating emergency intervention.
The government shutdown itself, while dominating headlines, appears unlikely to derail the economic trajectory that has supported markets through recent months. History provides reassurance here. During the 2018-2019 shutdown, stocks surged approximately 10%, demonstrating that investors typically look through temporary political disruptions to focus on underlying corporate earnings and economic momentum.
Looking at sector performance through the week, technology continued its leadership role, benefiting from both the ongoing AI investment narrative and the prospect of a lower rate environment supporting elevated valuations. The shutdown’s limited impact on private sector activity means tech companies face minimal operational disruption, allowing their structural growth stories to remain intact.
For portfolio construction in this environment, the message appears clear: maintain conviction in quality growth exposures while remaining alert to evolving employment dynamics. The combination of record market highs and weakening job creation creates a delicate balance that requires monitoring, but absent signs of broader economic deterioration, the path of least resistance for equities remains upward.
As we move deeper into October, the test ahead will be whether employment data, once available, confirms the cooling trend suggested by this week’s ADP report or whether September’s weakness proves anomalous. For now, markets have delivered their verdict: political dysfunction commands headlines but fundamental strength commands capital allocation, and October 2nd’s record closes stand as testament to investor confidence in the underlying economic backdrop.
Disclaimer: The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Capital Strategies Limited or its related companies. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.
