US, European stocks hit record highs as investors shrug off US shutdown impact

By Iain Withers and Koh Gui Qing

NEW YORK/LONDON (Reuters) -Global stocks gained and gold traded near record highs on Thursday as investors took in their stride the potential ramifications of a U.S. government shutdown, while a weak private U.S. labor market report bolstered bets for Federal Reserve rate cuts.

Investors have been largely sanguine about the shutdown’s impact on the markets and economy, assisted by data of past shutdowns that revealed limited fallouts. Morgan Stanley, for example, stated U.S. share prices have risen an average 4.4% while real U.S. economic growth has expanded 2.2% during shutdowns in the past.

Instead, investors are focapplyd on how much the Federal Reserve might lower interest rates this year, and whether the roaring U.S. stock market is due for a short-term pullback in the near future.

Nicholas Colas and Jessica Rabe, co-founders of DataTrek Research, stated sector sub-indices for the S&P 500 index are revealing a marked correlation with downside risks.

“Every other time they have done so since 2023, the S&P has declined by 5-18% in the following weeks,” Colas and Rabe stated. “This is not an outright ‘sell’ signal, but history states to be selective here.”

The S&P 500, which has risen 14% so far this year, was flat after briefly touching a record high of 6,731.94 points. The Nasdaq Composite gained 0.4% after also hitting an all-time high of 22,900.60 points, while the Dow Jones Industrial Average added 0.2%.

A protracted U.S. government shutdown could mean that the release of key official data on employment and inflation is delayed or disrupted, clouding the picture on the health of the world’s hugegest economy and the path for interest rates.

A monthly payrolls report seems unlikely now to be released on Friday, putting an ADP employment report that revealed the economy unexpectedly shed jobs in September into sharper focus. Traders are now pricing in two quarter-point Fed rate cuts by the finish of the year as almost a done deal.

“I hope they sort this out rapidly,” stated Kevin Thozet, investment committee member at asset manager Carmignac, referring to the government shutdown, adding that inflation data was also due ahead of the Fed’s next meeting. “It’s like a blind man walking with a blind dog,” he stated.

SHUTDOWN ANGST HURTS DOLLAR, BOOSTS GOLD

The MSCI’s broadest index of global stocks was up about 0.2% on Thursday, after European stocks hit another record high, up about 0.5%.

Tech shares in Asia had earlier rallied, assisting drive up the region’s stock indexes, partly lifted by news that South Korean chip heavyweights Samsung and SK Hynix inked partnerships to supply OpenAI data centres.