WEEK IN PERSPECTIVE: Market marches to record highs amid shutdown and dovish Fed expectations

📈 Markets Push Higher Despite Government Shutdown

Major U.S. stock indices surged deeper into record territory this week, brushing aside concerns over the ongoing government shutdown. The S&P 500 (+1.1%), Nasdaq Composite (+1.3%), and Dow Jones Industrial Average (+1.1%) all closed at fresh all-time highs, while the Russell 2000 (+1.7%) led the charge among smaller-cap benchmarks.

📊 Economic Data & Fed Outlook

Economic indicators painted a mixed picture but ultimately reinforced expectations for a dovish Federal Reserve. September’s ADP Employment Change showed a decline of 32,000 private-sector jobs, missing the consensus forecast of 40,000. Meanwhile, job openings rose to 7.227 million in August, and housing data remained subdued. Due to the shutdown, key reports like the September Employment Situation were not released. Nonetheless, the combination of soft data and Fed commentary strengthened market conviction for further rate cuts. According to the CME FedWatch tool, there’s a 94.6% probability of a 25-basis-point cut in October and an 85.1% chance of another in December.

📌 Sector Highlights

• Health Care (+6.8%): The standout performer, driven by Pfizer’s (PFE) gains following the TrumpRx initiative and Humana’s (HUM) boost from favorable Medicare Advantage guidance.

• Information Technology (+2.3%): Continued leadership thanks to strong momentum in chipmakers, especially NVIDIA (NVDA), which had a record-breaking week.

• Utilities (+2.4%): Benefited from defensive positioning and rate-cut optimism.

• Consumer Discretionary (-0.8%): Supported early in the week by Tesla (TSLA), but weakened after its Q3 delivery report.

• Energy (-3.4%): Struggled amid bearish sentiment around OPEC+ production and falling crude prices.

💬 Investor Sentiment

The week’s narrative was defined by the market’s resilience, new highs, and growing confidence in Fed easing. With earnings season approaching, investors are optimistic that further rate cuts could act as a tailwind for equities.

📈 U.S. Market Outlook: October 2025

• Equities Retreat Slightly: Major U.S. indices pulled back modestly in early October. The S&P 500 declined by 0.9%, Nasdaq by 0.5%, and Dow Jones by 1.3%, reflecting digestion of prior gains.

• Economic Growth Holds Up: Q3 GDP is estimated at 2.8%, slightly below Q2 but still above trend. Labor market data showed signs of cooling, with only 12,000 jobs added—the weakest monthly figure since December 2020.

• Valuation Concerns: The market is trading at a 3% premium to fair value, with nearly 40% of market cap concentrated in AI mega-caps. Analysts warn there’s “no margin for error” if AI growth slows.

• Sector Rotation: Investors are eyeing small-cap and dividend-yielding value stocks as potential outperformers later in Q4, especially if Fed rate cuts continue.

🔍 Key Themes to Watch

• AI Valuation Risk: U.S. tech stocks remain dominant, but any slowdown in AI adoption could trigger broader market corrections.

• Crude Oil Relief: Brent crude hit a 16-week low, easing inflation concerns and supporting consumer-facing sectors.

• Global Divergence: While U.S. markets digest gains, India and select emerging markets are gaining momentum.

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