US markets set records again in face of government shutdown, new tariff threats

MANHATTAN (CN) — As the government shutdown enters its fourth week and the tariff wars rage, so, too, has the bull market kept on rolling.

By the closing bell Friday, the Dow Jones Industrial Average gained 1,017 points, while the S&P 500 rose by 127 points and the Nasdaq netted 525 points. That marks another record high for all three indices.

With barely any federal economic data to peruse, investors were keenly focused on one of the few reports out this week: the consumer price index. The index, released by the U.S. Bureau of Labor Statistics, showed prices increased by 0.3% last month, slightly less than expected.

The rise in prices is less than the 0.4% increase seen in August, but CPI for the last 12 months is up 3% for both core CPI — which excludes volatile food and energy prices — and overall CPI.

Gasoline prices saw a massive jump last month, rising 4.1%, while energy prices overall gained 1.5% after a 0.7% increase in August. The only sectors seeing price decreases were medical care commodities, used vehicles, and energy services.

The CPI paved the way for another Federal Reserve interest rate cut next week, experts say. “Much like a Sherlock Holmes’ story, inflation is the dog that didn’t bark,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

“With the Fed cutting rates — and this report does nothing to stop them from a 25-basis point cut next week — and corporate profits continuing to increase, it’s hard to see an interruption of this year’s bull market.”

The only thing that has thrown a wrench into the market has been the flip-flopping on tariffs, but even there Wall Street has embraced ignoring bluster from the White House.

Investors ignored threats by President Donald Trump to cease all trade negotiations with Canada, purportedly over an Ontario government advertisement that used tariff comments by former President Reagan.

“TARIFFS ARE VERY IMPORTANT TO THE NATIONAL SECURITY, AND ECONOMY, OF THE U.S.A.,” Trump wrote in a Truth Social post Thursday night. “Based on their egregious behavior, ALL TRADE NEGOTIATIONS WITH CANADA ARE HEREBY TERMINATED.”

Investors are focused more on whether U.S.-China relations get patched up, which seems possible since Trump still plans to meet with China President Xi Jinping next week.

Wall Street also isn’t nervous about the ongoing government shutdown yet, though experts say a prolonged shutdown could hamper next quarter’s gross domestic product growth.

“The government shutdown could shave up to 0.8 percentage points off 4Q GDP if it continues,” Matthew Martin, senior U.S. economist at Oxford Economics, wrote in an investor’s note. “Missed federal paychecks and delays to federal contracts will deepen the drag in certain regional economies, but national consumer activity and economic momentum remain intact.”

The government shutdown is on track to become the longest in history, longer than the 35-day shutdown during Trump’s first administration. If the current shutdown continues past Nov. 4, it will be the longest ever.

Consumer sentiment, according to the University of Michigan’s monthly index dipped again and was lower than expected at 53.6 points, though it appears the shutdown isn’t to blame.

“There was little evidence this month that consumers are connecting the federal government shutdown to the economy,” Joanne Hsu, the survey director, said in a statement. “Only a handful of consumers mentioned the shutdown during this month’s interviews, compared with the 10% of consumers who did so in January 2019 during that 35-day shutdown.”

The decline was due more to continued frustration over inflation and high interest rates, the survey noted. Both the “current conditions” and “expectations” surveys by the University of Michigan also fell slightly this month.

Follow @NickRummell