Markets at Record Highs: AI and Chips Lift Stock Indexes
US equity markets closed higher on Thursday despite the ongoing government shutdown. The S&P 500 and Nasdaq 100 reached fresh all-time highs, while the Dow Jones climbed to a one-week peak. The rally was fueled by strong demand for chipmakers and AI infrastructure companies, along with positive momentum from Europe, where the Euro Stoxx 50 also hit a record high.
Government Shutdown and Its Impact
The US government shutdown is delaying the release of key macroeconomic data, including jobless claims and employment reports. Bloomberg estimates that up to 640,000 federal workers could be furloughed, potentially pushing the unemployment rate up to 4.7%. The White House has already warned of widespread layoffs in programs not aligned with administration priorities.
Labor Market Signals
According to Challenger, Gray & Christmas, announced job cuts in the US reached nearly 950,000 from January through September, the highest level since 2020. Meanwhile, job creation remains at its weakest year-to-date level since 2009, underscoring labor market weakness.
Fed Policy and Rates
Markets are pricing in a 98% probability of a 25 bp rate cut at the October 28–29 FOMC meeting. However, Fed officials struck a hawkish tone: Dallas Fed President Lorie Logan noted inflation remains above the 2% target, while Chicago Fed President Austan Goolsbee said the economy is “still growing solidly,” urging caution against frontloading rate cuts.
Earnings Outlook and Expectations
Corporate earnings expectations are also supporting stocks. More than 22% of S&P 500 companies issued positive guidance for Q3, the highest in a year. Overall earnings growth for Q3 is now expected at +6.9% y/y, up from +6.7% at the end of May.
Bond Market Dynamics
The 10-year Treasury yield fell to a two-week low of 4.08%, supported by weak labor data and safe-haven demand amid the shutdown. However, record stock gains and hawkish Fed comments limited further declines.
Market Leaders and Laggards
Chipmakers led the rally: AMD, Intel, and GlobalFoundries gained more than 3%, while ASML, Lam Research, and Marvell rose more than 2%. Crypto-related stocks also surged, with Coinbase up 7% after Bitcoin hit a 1.5-month high.
Other notable gainers included Fair Isaac (+17% on new credit scoring program), Stellantis (+8% on rising auto sales), Celanese (+7% after Citi upgrade), and Caterpillar (+2% on expectations of higher demand for data center turbines).
On the downside, Tesla fell -5% after federal EV subsidies expired, Occidental Petroleum dropped -7% after selling a unit to Berkshire below expectations, and Equifax tumbled -8% following competition concerns with FICO.
Despite political risks and hawkish Fed commentary, markets remain resilient. Investors are betting heavily on the long-term potential of AI and semiconductors, while focusing on upcoming data releases, inflation reports, and whether the US government will reopen soon.
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