The S&P 500 edged slightly higher Friday, retreating from record territory but capping a strong week as investors looked past the third day of a US government shutdown and weighed a murky economic outlook clouded by missing labor data.
The benchmark index closed nearly flat, up 0.01% at 6,715.79, while the Nasdaq Composite slipped 0.28% to 22,780.51. The Dow Jones Industrial Average outperformed, rising 0.51% to finish at 46,758.28, and the Russell 2000 added 0.72% to end at 2,476.18. All four indexes notched fresh intraday highs earlier in the session before losing steam in afternoon trading.
Despite the muted finish, the S&P 500 posted a weekly gain of about 1.1%, reflecting investor optimism that the shutdown’s economic fallout will be limited and expectations that the Federal Reserve will cut interest rates later this month.
The US government entered its third day of a funding lapse Friday, halting nonessential operations and furloughing hundreds of thousands of federal employees. The stoppage triggered an economic data blackout, suspending key releases including the Labor Department’s September nonfarm payrolls report.
President Donald Trump has warned of “massive layoffs” within federal agencies, calling the shutdown an “unprecedented opportunity” to streamline operations. Treasury Secretary Scott Bessent told CNBC the impasse could deal “a hit to the GDP, a hit to growth and a hit to working America.”
The Congressional Budget Office estimates roughly 750,000 federal workers will be furloughed daily during the shutdown, which some analysts believe could shave tenths of a percentage point off quarterly GDP if prolonged.
Historically, government shutdowns have had minimal long term impact on equity markets, though they often raise short term volatility and uncertainty around policy.
Market strategists said the S&P 500’s resilience underscores investor confidence in continued monetary support from the Federal Reserve, even as economic risks mount.
We view September’s mixed, private sourced substitutes for the Labor Department’s delayed jobs report as soft enough to justify another interest rate cut by the Federal Reserve at the October 29 FOMC meeting, said Jennifer Timmerman, senior investment strategy analyst at Wells Fargo Investment Institute.
The CME FedWatch tool shows traders largely expect a quarter point rate reduction at the upcoming meeting, citing signs of a cooling labor market and easing inflation pressures.
Technology stocks led Friday’s pullback, with Palantir Technologies falling 7.5%, Tesla down more than 1%, and Nvidia nearly 1% lower. The CBOE Volatility Index, a measure of investor fear, spiked as traders hedged against potential declines through options contracts.
Still, analysts said the broader rally remains intact. “Markets are looking through the noise,” said Marcus Li, chief strategist at Horizon Capital Advisors. “With inflation moderating and the Fed likely to ease, investors see this as a temporary pause rather than a reversal.”
The S&P 500 climbed 1.1% for the week, matching the Dow’s rise, while the Nasdaq gained 1.3% and the small cap Russell 2000 surged nearly 2%. Treasury yields remained subdued, with the 10-year note holding at 4.11%, reflecting steady demand for safe haven assets.
Recent private payroll data added to the picture of a softening labor market. ADP reported the largest decline in private sector hiring since March 2023, raising concerns that job growth may be faltering even before the shutdown’s effects are fully felt.
The missing jobs report complicates the Fed’s assessment, said Rachel Greene, senior economist at Pioneer Analytics. “Without timely data, policymakers must rely on secondary indicators, which may not capture real time conditions.”
Historically, shutdowns lasting fewer than two weeks have had limited economic consequences. The 2018–2019 closure, which stretched 35 days, trimmed roughly 0.1 percentage point from quarterly GDP growth, according to the CBO.
For many federal workers, the shutdown’s immediate impact is deeply personal. We’ve been here before, but it never gets easier, said James Miller, a furloughed analyst at the Department of Commerce. “Bills don’t stop because the government does.”
Small business owners who rely on federal contracts also voiced frustration. “Every delay in payments and approvals hurts cash flow,” said Maria Lopez, who runs a logistics company in Virginia. “We can manage for a week or two, but uncertainty makes planning impossible.”
On Wall Street, traders said the S&P 500’s resilience reflects broader optimism. “The market’s betting on a Fed cut and a quick resolution,” said Daniel Kim, a portfolio manager at Eastgate Investments. “But if the shutdown drags on, sentiment could shift quickly.”
Looking ahead, investors will monitor developments in Washington for signs of a funding breakthrough. With the release of key economic indicators paused, market participants are likely to focus on corporate earnings and forward guidance as alternative gauges of momentum.
The near term path for the S&P 500 hinges on policy clarity and confirmation that growth remains intact, said Greene. “Absent fresh data, volatility may rise as traders recalibrate expectations.”
If the Federal Reserve proceeds with a rate cut at its October meeting, analysts expect it could extend the equity rally into year end. However, persistent labor market weakness or a prolonged shutdown could temper those gains.
The S&P 500’s muted finish Friday capped a winning week for US stocks, highlighting investor confidence amid policy uncertainty. While the government shutdown has disrupted economic reporting and fueled short term caution, markets continue to price in monetary easing and a limited economic hit.
As the stalemate stretches into next week, Wall Street’s focus remains fixed on whether fiscal gridlock and softening labor trends will reshape the Federal Reserve’s path or simply mark another brief chapter in a resilient bull market.