Wall Street Braces for Government Shutdown Chaos

When it comes to the past, present and future of the US economy, perhaps the only universally agreed-upon certainty is universally agreed-upon uncertainty. But will routine uncertainty give way to nervous sweating and full-body clenching? 

Maybe. A possible (perhaps even likely) government shutdown this week could pre-empt Friday’s much-anticipated jobs report from the US Bureau of Labor Statistics, thus delaying a crucial macroeconomic snapshot. On Monday, Wall Street braced for a further drift into the unknown.

Shutdown and Out in Washington, D.C.

Here’s what we do know: Congress has until 12:01 a.m. on October 1 to pass spending bills that could avert a shutdown. And while shutdowns are rare, historically speaking (there have been 20 since 1976), the words “historically speaking” don’t tend to apply in 2025. While most shutdowns lasted only a day or two, the record 35-day shutdown in 2018-2019 cost the US economy at least $3 billion, or a roughly 0.02% ding to annual GDP, according to the Congressional Budget Office. This time around, the White House and the Office of Management and Budget are threatening that temporary furloughs may become permanent layoffs for thousands of federal workers. 

In other words, a shutdown would further disrupt and obfuscate 2025’s chaotic US economy and further strain a labor market that Federal Reserve Chair Jerome Powell just said required a “risk-management cut” to interest rates. (Needless to say, a protracted shutdown and subsequent data gap would further complicate Powell’s life as the Fed’s rate-setting committee prepares to meet again on October 28).

That said, the extended equity market bull run charged right through the typically sleepy September season (remember what we said about “historically speaking” trends in 2025?), fueled in part by said Fed rate cut. That has some on Wall Street downright chipper, even in the face of a possible shutdown:

• On Monday, Bank of America analysts raised their 12-month target for the S&P 500, now predicting an 8% gain by this time next year. Meanwhile, Goldman Sachs analysts on Monday upgraded their outlook for equities over a three-month horizon from “neutral” to “overweight,” citing resilient corporate earnings and the historically strong performance of equities during late-cycle slowdowns in times of low recession risk and strong policy support.
• And here’s another “historically speaking” trend that Wall Street loves to hear: In the three months after the passage of a budget following prior shutdowns since 1976, the S&P 500 has seen average returns of 2.9%, according to an LPL Financial note published Monday.

In My Froth Era: On the flipside, there are still hints that the market is already topping out. In the Monday note, LPL Financial flagged that the broader market is trading at an 11% premium to the 200-day moving average, or the highest point since December 2024. Meanwhile, BTIG analysts have flagged that the S&P 500 has gone over 100 trading days without falling below its 50-day average, an unusually long stint.