DC’s shutdown hasn't stopped the stock market. Here’s what may
[October 06, 2025] By
STAN CHOE
NEW YORK (AP) — If the U.S. government's latest shutdown can't stop the
stock market, what can?
Stock prices keep rising, even as the shutdown delays important economic
reports that usually steer trading. The S&P 500 and Dow Jones Industrial
Average set all-time highs Friday.
It's not just Big Tech driving the market, which has often been the case
in recent years. Sure, Nvidia and other darlings of the
artificial-intelligence frenzy are still climbing, but almost everything
on Wall Street is coming up a winner. The Russell 2000 index of smaller
stocks has set a record after taking nearly four years to get back to
its prior all-time high. Gold also hit a record in an unusual
confluence, while the most popular U.S. bond fund is on track for its
best year in at least five.
Past shutdowns have had minimal effect on the stock market or on the
economy, and the bet on Wall Street is that something similar will
happen again. Many professional investors expect the market to climb
still more, even after a 35% surge from its low in April.
That's not to say there aren't risks. Much of the optimism is built on
expectations for certain things to happen. If they don't, the pretty
picture on Wall Street could become much uglier. Among the potential
concerns:
Stocks are expensive
This is the easiest criticism to make about the stock market following
its nearly relentless rally since April. Stock prices tend to follow the
path of corporate profits over the long term, but stock prices have
surged much faster than profits lately.
One measure popularized by Nobel-winning economist Robert Shiller, which
looks at profits over the preceding 10 years, shows the S&P 500 near its
most expensive level since the 2000 dot-com bubble. Some critics have
made parallels between that bubble, which saw the S&P 500 eventually
halve in value, and the recent AI bonanza.
It's not just the big household names in the S&P 500 index raising
concern. Ann Miletti, head of equity investments for Allspring Global
Investments, has been struck by how much stock prices have shot up for
speculative kinds of stocks, such as smaller, money-losing companies.
They've done much better than their profitable counterparts in recent
months.
She said she's feeling relatively optimistic about conditions for stocks
going into 2026, but “it’s these little bubbles that are concerning to
me. When you see things like this, it’s generally not a good thing.”
To be sure, signals suggesting a too-expensive stock market are famously
bad at predicting turning points in the market. Stocks can stay
expensive for a while, as long as investors stay willing to pay the high
prices.
Profits need to climb
For stocks to look more typical in valuation, either stock prices need
to drop, or corporate profits need to rise. That's raising stakes for
the upcoming profit reporting season.
Companies are lining up to tell investors how much profit they made
during the summer, with PepsiCo and Delta Air Lines scheduled to lead
off on Thursday. JPMorgan Chase and other big banks will follow quickly
afterward.
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 Analysts are looking for S&P 500
companies to report collective growth of 8% in earnings per share
from a year earlier, according to FactSet. They'll need not only to
hit that target, but also to forecast continued growth for the rest
of this year into next.
That's even though companies are still trying to figure out how to
deal with tariffs, stubbornly high inflation and other shifts in an
uncertain economy.
The Federal Reserve needs to cut interest rates
One of the main reasons the stock market has boomed is the
expectation that the Fed will deliver a string of cuts to interest
rates.
Lower rates give the economy a boost by making it cheaper for U.S.
households and companies to borrow and spend. They can also make
investors willing to pay higher prices for stocks, bonds and other
investments.
Traders on Wall Street are largely expecting the Fed to cut interest
rates at least three more times by the middle of next summer,
according to data from CME Group. Fed officials themselves have
indicated they're likely to cut because the job market is slowing.
But Chair Jerome Powell has insisted they may have to change plans
quickly. That's because inflation has remained stubbornly above the
Fed's 2% target, and lower interest rates can give inflation more
fuel.
“I feel like interest rates and expectations of what the Fed is
going to do are driving everything right now,” Miletti said.
“If the Fed doesn’t cut as much as people are expecting, any of
these areas that look a little speculative, because they’re not
based on fundamentals, those areas will have some real problems.”
The AI boom needs to pay off
“This is the question of the decade,” said Yung-Yu Ma, chief
investment strategist at PNC Asset Management Group.
Ma does not feel that AI-related stocks look too expensive, even
after their big climbs, but that's only as long as gangbusters
growth and sales for the industry keep going.
Hopes for AI also seem to be helping to keep down longer-term
interest rates and worries about inflation. AI will need to make the
economy more productive in order to offset the upward pressure on
inflation and interest rates that are coming from the huge mountains
of debt that the U.S. and other governments worldwide are building.
“If we do achieve these benefits for companies and for people's
lives, everything can go well for years,” said Ma. “I think everyone
is tying their fortunes to that ship, whether they realize it or
not.”
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