In a significant boost for the stock market, the Dow Jones Industrial Average climbed sharply on Tuesday, driven by rising optimism regarding the potential resolution of the US government shutdown. The index surged by 559 points, or 1.18%, closing at a new all-time high of 47,927.96. Contrasting trends were observed in other major indices, with the S&P 500 gaining a modest 0.21%, while the tech-heavy Nasdaq Composite experienced a slight decline of 0.25%.
The upward movement in stocks followed the Senate’s approval of a funding measure aimed at ending the government shutdown, which has had broad implications for economic stability. The bill is set to move to the House for approval before reaching President Donald Trump for final sanction. Mohit Kumar, chief economist and strategist for Europe at Jefferies, expressed positive sentiment, stating, “With the Senate passing the stopgap funding bill, it is likely that the government shutdown will end by the end of the week.”
Investors demonstrated a notable shift in preference, rotating out of technology stocks and reallocating capital into sectors such as health care, energy, and consumer staples. This shift contributed to the overall increase in the Dow, which is less vulnerable to fluctuations within the tech and artificial intelligence domains. Notably, 26 of the 30 companies within the blue-chip index closed higher on Tuesday.
The anticipated resolution to the shutdown carries significant implications for the economy, particularly with the potential release of delayed key economic data on the job market and inflation. Access to this data could reinstate investor confidence and provide a clearer outlook moving forward. Historical data shows that in the wake of the last 15 government shutdowns since 1981, the S&P 500 has seen an average gain of 2.7% within the month following the reopening, a statistic highlighted by Sam Stovall, chief investment strategist at CFRA Research.
Further reinforcing the optimism, José Torres, senior economist at Interactive Brokers, stated, “A finalized deal later this week is expected to drive stocks to stronger advances, as a significant economic risk is pushed to the rear-view mirror and replaced with improved prospects for the holiday season.”
On the technology front, Nvidia shares declined by 2.96% as SoftBank revealed that it had divested its entire stake in the company. Meanwhile, shares of CoreWeave, a prominent cloud-computing company within the AI sector, plummeted by 16.31% after the firm’s guidance failed to meet investor expectations. This downturn follows a robust performance on Monday when the Nasdaq surged by 2.27%, marking its strongest day since May as investors capitalized on perceived bargains in tech stocks.
The bond market was notably closed on Tuesday in observance of Veterans Day. Investor sentiment, as reflected by CNN’s Fear and Greed index, remained in “fear” territory, albeit an improvement from the previous week’s “extreme fear.” Despite Tuesday’s pullback in the Nasdaq, some market participants anticipate that the positive rally will persist.
Ulrike Hoffmann-Burchardi, global head of equities at UBS, asserted that “The Federal Reserve’s policy easing, robust corporate profits, and strong AI spending have been the key market drivers, in our view, and they should continue to support the equity rally.”
