Wall Street loves good news, and on Tuesday the markets soared on the good news about good news, with the Dow Jones Industrial Average climbing over 550 points. The increase is being driven by positive sentiment over a potential end to the US government shutdown. That hope increased after the Senate passed a continuing resolution funding bill on Monday with broad bipartisanship. Of those 30 companies in the Dow, 26 had their stock prices go up afterwards. This increase is part of a tidal wave of good news that’s rolling across the entire market.
Tuesday was marked by a clear change in strategy from investors. Beyond switching out of tech stocks, these days, they’re focusing on more-stable sectors with predictable reward, such as health care, energy and consumer staples. This tactical shift proved to be a winning play, contributing to market-wide strength and day-long upward momentum in stock performance.
The current rally in the Dow is a direct result of increasing optimism that the government shutdown will soon be over. This development has taken the immediate worry of many investors off the table. According to historical data, the S&P 500 has an average return of 2.7% in the month immediately following a government reopening. This trend rings true after analyzing the last 15 shutdowns since 1981. This historical legacy is probably a large part of what’s driving the current investor pessimism.
José Torres, a senior economist at Interactive Brokers, remarked on the situation:
“A finalized deal later this week is expected to drive stocks to stronger advances, as a significant economic risk is pushed to the rear-view mirror and replaced with improved prospects for the holiday season.”
Ulrike Hoffmann-Burchardi, global head of equities at UBS, highlighted key drivers behind the market rally:
“The Federal Reserve’s policy easing, robust corporate profits, and strong AI spending have been the key market drivers, in our view, and they should continue to support the equity rally.”
U.S. stock market shrugged off inflation fears to finish sharply higher on Tuesday. The bond market was closed in honor of Veterans Day. Analysts like Mohit Kumar, chief economist and strategist for Europe at Jefferies, expressed confidence regarding the government funding situation:
“With the Senate passing the stopgap funding bill, it is likely that the government shutdown will end by the end of the week.”
As the week unfolds, investors will be watching closely for developments regarding government funding and its implications for market performance. The optimism created from this possible legislative resolution is coloring trading behavior. This enthusiasm could play a role in sector rotations as we move into the holiday season.