By Martin Baccardax
Global investors are likely to find themselves in an information air pocket over the coming weeks, should both sides of the current U.S. government shutdown standoff remain entrenched, leaving markets largely unanchored heading into a crucial stretch of the year.
Government-run agencies such as the Bureau of Labor Statistics, the Census Bureau, and the Bureau of Economic Analysis will suspend data publication during the shutdown, leaving investors bereft of readings on the job market, inflation, and retail sales.
Private-sector readings tracking economic activity, jobs, the housing, and mortgage markets as well as statistics and reports from the Federal Reserve will continue to be released, but markets will be largely unable to establish real economic benchmarks until the start of the third-quarter earnings season in two weeks.
"A data blackout would inject additional uncertainty and leave markets vulnerable to swings on headlines or anecdotal signals," said Mark Hacket, chief market strategist at Nationwide. "In that environment, sentiment could have a bigger role in driving near-term market moves."
And that could prove key to the market's ability to extend its impressive autumn rally into the end of the year, as investors remain focused on stock valuations, the surge in AI investments, and the prospect for Federal Reserve interest-rate cuts.
Financial sector profits contributed to around a fifth of the S&P 500's collective 13.8% earnings growth over the second quarter, and a similar percentage of the overall $567 billion tally.
LSEG forecasts suggest that impact is likely to increase to around 25% over the three months ending in September, with financial sector companies generating around $106.1 billion in collective profits.
A third-quarter merger boom is expected to be one of the biggest earnings drivers, particularly for the biggest Wall Street banks such as Goldman Sachs, Citigroup, Morgan Stanley, and JP Morgan Chase, which kick off the reporting season on Oct. 14.
Data from Dealogic indicate that about $1.26 trillion worth of deals were completed over the three-month period ending in September, marking the second-best third-quarter performance on record.
Expected Fed rate cuts, alongside persistent concerns over a renewed inflation spike, are expanding the gap between short- and long-term bond yields, a condition that is also usually constructive for future bank earnings growth.
"We like financials for all the usual reasons -- the yield curve, expected moves in the curve, deal flow, and so on," said Mark Malek, chief investment officer at Siebert Financial. "The challenge is that they're a bit expensive right now."
The S&P 500 Banks Index is up around 22% so far this year, firmly ahead of the 14% advance for the broader benchmark. However, it's also trading at 13.2 times the earnings it is expected to generate over the next 12 months. That's around 120% north of the five-year average, according to data from Morningstar.
The post-Covid surge in retail trading is also expected to boost the bottom lines of online brokerage firms and trading platforms such as Charles Schwab, Interactive Brokers, Robinhood, and Coinbase Global.
"We remain long-term bullish on the online brokers due to multiple factors but are less positive over the near-term due to a more expensive entry point combined with the prospects of lower interest rates," said Bank of America analysts, led by Craig Siegenthaler, in a note published Wednesday.
A lot can happen over the next two weeks, of course, but with stocks holding on to gains over the first hours of the shutdown, the path toward the start of the third-quarter earnings season could still carry markets higher.
"The Fed is typically dovish when no economic data is released, suggesting the market is unconcerned for a reason,' said Louis Navellier of Navellier Calculated Investing. "Momentum remains positive and hopeful dip buyers are going to have to wait," he added.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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October 01, 2025 15:08 ET (19:08 GMT)
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