The U.S. government shutdown, which began on 1 October, has now stretched into the longest in recent history. What started as another political standoff has evolved into a situation that’s becoming far more consequential for markets than many initially expected.
It appears this is one of those rare times when the market and the Fed are both flying blind. With the shutdown freezing the flow of official economic data, particularly the Non-Farm Payrolls (NFP) report, investors and traders are left without the key indicators that usually guide decision-making.
That lack of visibility is making the markets more reactive, more uncertain, and, in many ways, more fragile.
Why It Matters
When agencies like the Bureau of Labor Statistics (BLS) shut down, the entire chain of data collection and reporting is disrupted. That means the market loses access to the very information that helps it maintain order: labour figures, inflation metrics, productivity data.
For the Federal Reserve, this makes a challenging environment even more complex. With inflation still above target but labour-market strength fading, the Fed is trying to steer the economy without its instruments.
I’ve said before that the Fed is “flying blind just when it needs all the information it can get to navigate a very challenging time in the markets.” The irony is that the U.S. economy continues to produce data—it’s just that no one can see it.
For investors, that means positioning becomes guesswork. Without verified numbers, decisions are based on fragments in private surveys, sentiment indicators, and speculation. It creates a market that is highly speculative, reacting more to headlines than to fundamentals.
Stocks, Bonds, and the Dollar
On the surface, markets may seem calm. The S&P 500 has even made fresh record highs despite the shutdown. But when I look under the hood, I see tell-tale signs of a market on the edge: tight ranges, thin conviction, and hypersensitivity to news flow.
Normally, scheduled data releases give investors something solid to anchor to— something measurable. As I put it in a note to clients, ‘The lack of data provides suspense, creating uncertainty and more reactive decision-making.‘
Here’s how that tension is playing out across key assets:
- Treasuries are drawing safe-haven bids, pushing yields lower.
- USD is consolidating with little direction with no catalyst for the next big move.
- Equities remain strong, but I’m noticing fatigue creeping into the underlying data—especially in cyclical and small-cap names.
For stocks, the missing NFP data is a double-edged sword. A weaker print would normally feed optimism through lower rate expectations, but a delayed print erodes confidence in the growth outlook. That leaves investors second-guessing whether the strength we’re seeing is truly backed or just inertia.
Policy Uncertainty
This is where things get tricky. The Fed’s next move is now harder to read than ever. Inflation remains sticky, job growth is slowing, and the absence of official data has forced policymakers to rely on anecdotal and private indicators.
Powell’s latest comments suggest that rate decisions will remain data-driven, which also means the Fed is effectively in a holding pattern until data releases resume.
On the fiscal side, things are just as uncertain. A prolonged shutdown raises practical questions about how the government is funding activities from paying workers to maintaining key programs. If federal furloughs expand, we could see a slow but steady rise in unemployment, which would sap economic momentum heading into the final months of the year.
What I’m Watching
From a trader’s perspective, there are a few things I’m keeping a close eye on:
- Timing of Data Releases
If the shutdown drags on, we could see acluster of delayed reports: NFP, inflation, manufacturing — all released within a short window. That would inject volatility back into the market very quickly once the backlog clears.
- Market Reaction When Data Returns
The first batch of official data post-shutdown will likely spark a sharp reaction. Weak numbers could confirm the slowdown narrative, while strong data might revive hawkish expectations. Either way, expect fast, exaggerated moves as traders recalibrate.
- Sector Rotation
Growth stocks have led for months, but if uncertainty persists, I’d expect rotation into defensive sectors— names with solid balance sheets, stable cash flows, or exposure to structural growth themes like AI and infrastructure.
- U.S. Credibility and Fiscal Risk
If the shutdown rolls into December, I think we’ll see broader implications. Prolonged dysfunction risks denting global confidence in U.S. fiscal governance, potentially weighing on Treasury demand and the dollar’s stability.
Operating in the Dark
“The U.S. government shutdown has introduced a rare and awkward variable into the markets — an economy producing data while the relay of that data is cut off… Until the data flow returns, investors must contend with what they don’t know, not what they do.”
That’s the reality we’re in right now. Investors rely on private data, instincts, and sentiment instead of hard statistics. For the moment, that’s keeping markets afloat but it also means we’re skating on thinner ice than many realise.
In my view, equities may continue to hold up near term, buoyed by optimism around AI, infrastructure, and ample liquidity. But the longer the data blackout lasts, the more likely it becomes for valuations to stretch far ahead of fundamentals.
If delayed reports eventually reveal structural weaknesses or policymakers misjudge the cycle, the market could see a swift, sharp reset.
Right now, stocks aren’t charging—they’re bracing. Until visibility returns, traders will need to manage risk with extra discipline, stay nimble, and remember that a risk is only a risk when it’s unknown..
Disclaimer
The views and opinions expressed in this article are those of Ross Maxwell, Market Analyst at VT Markets. They reflect his personal analysis and insights on current market conditions and do not necessarily represent the views or official position of VT Markets. This commentary is provided for informational purposes only and should not be construed as financial advice.
