Stock futures point to a positive open amid lingering optimism from the Federal Reserve’s recent 25-basis-point rate cut and cooling inflation data, though uncertainty around potential government shutdown risks and escalating tariff threats could cap gains. Congressional negotiations on the federal budget and a possible government shutdown are the biggest near-term risks, which could significantly impact market volatility and data flow.
The risk of a U.S. government shutdown is not negligible—shutdowns have actually happened multiple times. Since the late 1970s, there have been 21 federal shutdowns, with durations ranging from just a few hours to as long as 34 or 35 days. Major shutdowns have occurred over budget disputes, such as those during the Clinton, Obama, and Trump presidencies. The most recent and longest shutdown lasted 34-35 days from December 2018 to January 2019 under President Trump’s earlier term.
Investors know these government shutdowns get resolved, so they are not worried. With expectations for two more rate cuts in 2025 and the market’s high valuation, highlighted by the Warren Buffett Indicator at a record 218%, the good news is priced in. Which means any disappointment like the Fed not cutting rates would send markets lower. I think a resurging economy could disappoint investors with regard to rate cuts. Markets are at the end of an Elliott wave, the risk is a major pullback starting in October.