Stock market sets records in uncertain economy
Government shutdown. Weak labor market. Stubborn inflation.
None of them seem to matter to the stock market. At least not yet.
Stocks closed moderately lower Tuesday, but it was the first day down in more than a week. The NASDAQ Broad S&P 500 and NASDAQ indexes have seen more than 30 closings this year. Futures were slightly higher Wednesday morning.
As other parts of the economy show, the market’s gains support concerns about an economy in which America’s richest families continue to thrive even as lower- and middle-income families do not.
“It signals a bifurcation of the economy,” said Steve Sosnick, chief strategist at Interactive Brokers Group.
There have been two forces driving much of the recent market run: AI investments, and the potential for lower interest rates.
Sosnick pointed out the accounts Showing that spending on building AI infrastructure, such as data centers, is now responsible for a massive portion of economic growth this year.
This spending hasn’t led to much new job creation in the overall economy: 2025 is on pace for one of the worst years added to new payrolls this century. The government shutdown delayed the release of official September jobs data, but on Tuesday, private equity giant Carlyle said its internal indicators indicated the US economy added just 17,000 new payrolls last month. Last week, payroll processor ADP Issue a report This also showed a significant slowdown in the jobs market.
But the AI boom has helped stock investors grow wealthy. According to data reported by Barron’s Investment magazinethe seven technology stocks that include the so-called “Awesome 7” They were responsible for nearly two-thirds of the S&P 500’s 3.65% gain last month, and they have accounted for about 41% of the index’s 15% gain this year.
“I think there’s always a little bit of the K-shaped nature of the economy,” Sosnick said. “But it went from looking like a lowercase ‘K’ to a capital ‘K.’
Meanwhile, economic uncertainty shows no signs of letting up.
Government shutdowns usually have a limited impact on markets and the economy. This time could be different, though. As the shutdown enters its second week, the White House has begun threatening mass layoffs, while President Donald Trump and other GOP officials are questioning the government’s commitment to issuing wages. With government spending continuing to represent a large share of the economy, any of these developments could have consequences for growth if enacted.
Trump also continues to roll out tariff plans, only to delay their implementation. The latest example is a proposed tariff on imported trucks that was scheduled to take effect on October 1, before being delayed a month.
The recent weak jobs data has been enough for the Federal Reserve to conclude that it must lower interest rates to support hiring. Investors now put the odds that the central bank will announce at least one more rate cuts at its last two meetings this year at more than 80%. However, some Fed members remain concerned about the pace of inflation, which remains well above the central bank’s 2% target. Carlyle also found that inflation reached 3.3% in the services sector last month.
Sosnick said the worsening jobs data will likely exacerbate the tight nature of the economy if lower rates continue to fuel stock gains. A lackluster “real” economy and a booming stock market “could coexist for a while,” he said. On Tuesday, the New York Federal Reserve He said Consumer expectations have deteriorated, with the outlook for both the labor market and inflation worsening.
Tuesday’s stock decline could be a warning. The market appears to have been derailed by a report from Online News Outlet Information that questioned whether one of the major players in the recent AI Runup, Oracle, has the capacity to successfully fund its commitment to purchase chips from another AI heavyweight, NVIDIA.
Some technology analysts had already gotten so worked up about the circular nature of the AI investment cycle that it was starting to give the impression that the same money was being passed back and forth between the same handful of companies. An Oracle representative did not respond to a request for comment on the story.
Although the story was focused solely on Oracle, Sosnick said she pulled the rest of the market on Tuesday as she suggested other companies whose stocks have benefited from AI as well.
Mark Zandi, chief economist at Moody’s Analytics, said that if those benefiting from the current economic environment are already proving increasingly tight, it won’t take much of their wealth to set off a broader downturn.
“The economy appears to be on the brink, and it won’t take much to push it over the edge,” he said. “It feels very vulnerable and vulnerable, and any little thing that doesn’t stick to the script can cause it to stagnate.”