The S&P 500 is on track to hit a record high as investors balance bets on future rate cuts with worries over a possible U.S. government shutdown. Weak private payroll data has fueled hopes that the Federal Reserve will ease monetary policy. However, the shutdown threatens to delay key economic reports, complicating the Fed’s decision-making process.

Futures tied to the S&P 500 and Nasdaq gained ground following the disappointing labor numbers, which heightened expectations for a 25 basis-point cut in the next meeting. Markets now price in nearly two cuts by year’s end, despite tense fiscal politics in Washington. The surge in optimistic sentiment underscores how dominant rate expectations remain for equities.

Still, risks from the shutdown loom large. A prolonged impasse could disrupt data flow, reduce visibility into economic trends, and force the Fed to rely on private indicators. Analysts warn that in such conditions, policy errors are more likely, adding a layer of fragility to an already fragile rally.

Large tech stocks and AI-linked names continue to underpin market strength, with big bets being placed on the sector’s growth in a low-rate environment. Their resilience often outweighs macro concerns, especially when rate expectations dominate headlines. For now, investors seem willing to look past political turbulence if the Fed keeps steering toward easing.

Looking ahead, the S&P index’s ability to break records depends on whether interest rate cuts materialize and whether the shutdown proves short and manageable. Any surprise shifts—on data, politics, or the Fed—could quickly reverse sentiment. For now, optimism reigns, but markets may be dancing close to a fault line.

Source: Reuters.