U.S. stocks reached new record highs on Wednesday, indicating that investors have limited concerns about the federal government shutdown and are hoping for a brief disruption with manageable economic impact. The S&P 500 closed up 0.34% at 6,711.20 points, touching an intraday record high, while the Nasdaq Composite gained 0.42% to close at 22,755.16 points. The Dow Jones Industrial Average rose modestly by 43.21 points to 46,441.10 points.
During early trading, the S&P 500 had declined as much as 0.5%, but reversed course led by a rebound in the healthcare sector, with Regeneron Pharmaceuticals (REGN.US) and Moderna (MRNA.US) posting gains. For the entire month of September, the S&P 500 has accumulated gains of over 3.5%, continuing its strong momentum.
"The market seems unconcerned, and momentum remains positive," said Louis Navellier, founder of Navellier & Associates.
Despite the strong market performance, the political deadlock in Washington has heightened uncertainty. The Republican-controlled Senate failed to pass a temporary funding bill, leading to an official government shutdown that has forced approximately 750,000 federal employees into unpaid leave. The Congressional Budget Office estimates that the shutdown will significantly drag on short-term economic activity.
Former President Trump has threatened to "permanently fire" some federal employees if the shutdown extends, while Vice President Vance stated that layoffs cannot be ruled out but believes the shutdown "won't last too long."
The market's focus is on the duration of the shutdown. This shutdown has caused government agencies including the Department of Labor to cease operations, meaning the September non-farm payroll report will not be released on schedule, leaving the Federal Reserve in a "data vacuum" ahead of its late-October policy meeting.
Meanwhile, ADP employment data released Wednesday showed that U.S. private sector employment fell by 32,000, well below market expectations of a 45,000 increase, marking the largest decline since March 2023. This has led markets to further expect the Fed to implement its second rate cut of the year this month, with the possibility of another reduction in December.
While market sentiment remains optimistic, some prominent investors have issued warnings. Wall Street legend Leon Cooperman pointed out that current market sentiment resembles the tech bubble period of the late 1990s, with artificial intelligence-related stock valuations being "ridiculously high."
He quoted Warren Buffett's 1999 observation: "Once everyone can make money regardless of method, markets attract investors driven purely by fear of missing out, which is often a precursor to the end of bull markets."
Data shows the S&P 500 has rebounded nearly 40% since its April lows, driven by large-cap technology companies. Meanwhile, the "Buffett Indicator" (total market capitalization to GDP ratio) has soared to 217%, far exceeding the highs during the internet bubble and the 2021 COVID-19 pandemic period. Buffett has previously described such levels as "playing with fire."
Despite the constant warnings, Cooperman still believes that in a high inflation environment, stocks may pose lower risk than bonds, since bonds have fixed nominal rates and their real returns are easily eroded by inflation.
