As we move into the final stretch of the year, markets are climbing in the face of mixed signals from the economy and politics. Economic data remain uneven—growth is holding up, but the labor market has softened. Trade and tariff policy remain unpredictable, immigration flows have slowed, and the effects of tighter monetary policy in 2023–24 continue to ripple through the economy.
Even so, GDP growth continues, M2 money supply has expanded modestly, and markets have shown surprising resilience. By many valuation metrics—price-to-earnings, price-to-sales, and capitalized profits—the stock market looks expensive. Yet investors are showing little concern, with equity markets moving higher despite the constant headlines.
One of those headlines is the government shutdown. While it has drawn significant media attention, history shows shutdowns have not been recession triggers. Over the past 30 years, government shutdowns have lasted a total of 80 days, and during none of those days was the economy in recession. The most recent recession, following the 2018–2019 shutdown, was caused not by the budget impasse but by the global COVID-19 pandemic more than a year later.
A shutdown may cause short-term disruptions, but Social Security, Medicare, Medicaid, and Treasury payments continue, along with military, border, postal, and other essential services. Markets appear to understand this, which is why investor sentiment has been largely unaffected.
What makes this moment different is the Administration’s posture—considering lasting cuts to “non-essential” federal jobs and reducing the scope of government spending. While the political outcome remains uncertain, long-term investors can view this as a potential positive: a leaner federal government may enhance long-term economic growth and productivity.
Still, investors should remember that markets have already priced in a lot of good news. With valuations high, expectations are elevated. While we remain optimistic, it would take outcomes “better than perfect” to justify ever-higher stock prices.
Our Takeaway
Uncertainty—whether from Washington, the Federal Reserve, or global trade—is nothing new. The important point is that market noise, whether about shutdowns or politics, should not derail long-term planning. A disciplined investment strategy, tied to your personal goals, remains the best way to navigate volatility.
We encourage clients to focus on what can be controlled: thoughtful planning, diversification, and a long-term perspective. The headlines will change, but your financial goals should remain the guide.