Joy and caution have been the two dominant sentiments in the market following the end of the longest U.S. government shutdown in history, lasting 43 days. On one hand, in the U.S., Wall Street traders drove most equities higher while bond yields declined. On the other, investors remained mindful that a return to normal will take weeks, and the core agreement only runs until January 31 of next year.
Paul Dalton, Head of Equities at Federated Hermes Limited, commented: “The resolution of the U.S. government shutdown removes some short-term uncertainty and is undoubtedly a positive development. However, we’re aware that this is only a temporary truce. The next deadline will come quickly. It remains to be seen whether this pause will create room for negotiating a more lasting agreement. For global equities, the outcome has been moderately favorable, and the resumption of data collection should give investors better visibility into the state of the U.S. economy. That said, delayed data may create ambiguity around the true economic situation, and key risks remain, such as the strength of the U.S. consumer and the ongoing debate over whether the AI trade is a bubble.”
The Optimism
Benoit Anne, Senior Managing Director of the Strategy and Insights Group at MFS Investment Management, highlighted the good news: “Analysts will once again benefit from the resumption of official data flows. It also means the negative growth impact of the shutdown will be fairly limited. The key question now is what kind of macroeconomic picture will emerge. Labor data seems to be setting the tone, though it may continue to send mixed signals.”
The optimism surrounding the end of the U.S. government shutdown helped U.S. equities extend gains on Tuesday. Historically, such shutdowns have had a limited impact on markets, so the quick shift in investor sentiment should come as no surprise. For Mark Haefele, CIO of UBS Global Wealth Management, “The Federal Reserve’s accommodative monetary policy, strong corporate earnings, and robust AI spending have been the main market drivers and should continue to support the equity rally. We believe U.S. stocks still have upside potential and expect the S&P 500 to reach 7,300 by June 2026.”
The Caution
Anthony Willis, Senior Economist at Columbia Threadneedle Investments, agreed that the reopening will finally provide the Fed with greater clarity on economic data and policy direction—an absence that had stalled legislative activity. But he warned: “Even if the shutdown’s economic impact was limited, flight delays and risks to food stamp disbursement brought the situation to a critical point. Other challenges persist, such as the Supreme Court review of tariffs imposed by President Trump.”
Banca March noted that financial markets are cautiously welcoming the government’s reactivation, aware of its temporary nature. Investors remain focused on delayed macroeconomic publications, and next week’s anticipated Nvidia results add to the ongoing AI debate.
“In the coming days, publication calendars from affected agencies will be updated, and the final decision on the matter will be made. This calendar will be key, as the data will be used by the Federal Reserve Committee in its monetary policy meeting scheduled for December 10. Though the return to normal will be gradual, it comes just in time for the holiday season. The worst economic impact has been avoided, and the Trump Administration is presenting this reopening once again as a victory in a crisis that was, in reality, self-inflicted,” Banca March stated in its daily report.
Muzinich & Co offered a more critical view, suggesting the U.S. is at the center of rising global caution. “Investors are stress-testing the wall of worries—growth, geopolitics, valuations, liquidity, and imbalances—in a financial version of Jenga. In other words, sentiment has deteriorated. Our preferred indicator, the VIX index, recently crossed the 20 level, indicating rising uncertainty. The U.S. is at the heart of this global uncertainty spike, beginning with the partial government shutdown—the longest on record—estimated to have cost the economy about $15 billion per week.”
Assessing the Shutdown’s Impact
Experts believe that much of the economic activity lost in recent weeks will be recovered as federal employees return to work and receive full back pay. “The U.S. GDP for Q4 is expected to be reduced by several tenths of a point due to the shutdown, but much of this should be offset by stronger output in Q1 2026, boosting full-year growth. We forecast 2.4% growth for next year, up from 2.1% this year, despite rising threats to U.S. economic momentum,” analysts noted.
While short shutdowns usually have limited economic effects, this one could leave a lasting mark due to its record length. The Congressional Budget Office recently estimated that around $11 billion in economic activity could be permanently lost, according to Dennis Shen, Chair of the Macroeconomic Council at Scope Ratings.
Finally, Susan Hill, Head of Government Liquidity at Federated Hermes, highlighted the shutdown’s impact on liquidity markets due to the lack of official data and how this may have influenced Fed policy discussions. “We welcome the end of the shutdown and the return of data ahead of the December FOMC meeting. Technically, the Treasury’s elevated operating cash balance—partly a result of delayed outflows during the shutdown—has contributed to higher overnight funding rates at the short end,” Hill concluded.
