Post-Shutdown Markets: Data Fog, Rate-Cut Doubts, and AI Valuation Stress
The shutdown is over, but the market hangover is here. Rate-sensitive tech led the selloff, with the Nasdaq off roughly 4% from October's peak before a late-week bounce left it up 0.13% on Friday. Credit spreads widened, gold softened, and even bitcoin slid below $96,000. The common thread: uncertainty.
The Data Vacuum Is Real
Key government numbers weren't collected for 43 days. That includes parts of jobs and inflation data, futures positioning, and crop estimates that feed into macro models. October CPI publication is in doubt, and the October jobs report won't include the unemployment rate because the household survey wasn't conducted, per White House economic advisor Kevin Hassett.
Agencies are now playing catch-up. The Census Bureau and BLS plan to start releasing skipped data next week, with September employment rescheduled to November 20. Until those prints land, models are running with wider error bars-and so is the Fed.
Fed Reaction Function: From Cuts to Caution
Chair Jerome Powell called this "driving in the fog" and signaled a slower approach after back-to-back cuts in September and October. Translation for markets: a higher bar for additional moves until data confidence improves. Odds of a 25 bps December cut have dropped to about 46%, per CME's FedWatch.
"We saw cuts in September and October because the Fed felt confident in the inflation trend," said Tim Horan at Chilton Trust. "Will they have that confidence in December with fewer data points?" That's now the core debate.
Valuations Meet Gravity
Forward P/E on the S&P 500 sits around 22.8x vs a 10-year average near 18.8, according to LSEG Datastream. After a near-uninterrupted rally off the April trough, it doesn't take much for profit-taking to kick in-especially in crowded trades.
Palantir and Oracle are down ~12% and ~14% this month, while Nvidia is off ~6%. Nvidia's report next week is pivotal given its role at the front of this year's market. "Any downside could ripple further in sectors that have put up big numbers," said Chuck Carlson of Horizon Investment Services.
AI Euphoria, Meet Accounting and Credit
Michael Burry's move to close Scion Asset Management added to nerves around AI-linked names. He's argued large tech firms are stretching depreciation schedules on massive GPU and server spend to smooth earnings. That scrutiny is spilling into credit, where Oracle bonds have weakened on concerns over heavy AI infrastructure financing.
On the hedge fund side, filings suggest some managers are dialing back tech exposure. Tiger Global cut its stake in Meta, a reminder that positioning can turn quickly when valuations are rich and rates support is in question.
What's Priced vs. What's Probable
Despite the data fog, markets still lean toward at least three cuts by end-2026, taking policy toward ~3%. That view faces pressure as more policymakers voice reluctance to ease without clearer inflation and labor signals.
"The Fed is flying blind as we are," said Bob Savage at BNY. Until the data gap closes, policy visibility is limited-and so is conviction in risk.
Practical To-Dos for Finance Teams
- Re-run rate scenarios: Lower your December cut probability and test 0-1 cuts in 1H. Refresh discount rates and hurdle rates accordingly.
- Duration and convexity: If cuts slip, carry matters. Recheck bond laddering and callable exposure; extend duration selectively on weakness rather than chasing rallies.
- Credit hygiene: Spreads are widening. Upgrade quality at the margin, trim the tail risk in HY, and consider CDX hedges for event windows.
- Equity risk control: Reduce concentration in the AI complex; harvest gains where multiples outrun cash flow visibility. Use collars or put spreads around single-name earnings, especially Nvidia.
- Accounting review: Scrub tech holdings for useful life changes on servers/GPUs and capitalized software. Map the earnings sensitivity if depreciation normalizes sooner.
- Event calendar discipline: Respect the catch-up data days (e.g., Nov 20 employment) and the next FOMC. Size positions lighter into prints; add on clarity.
- Liquidity planning: Keep dry powder for spread wideners and mispricings. If you're an issuer, watch for primary market windows and be ready to pounce.
- FX and rates hedging: A "hold" Fed bias can support the dollar. Hedge non-USD earnings and consider rate caps/floors where exposure is material.
Key Dates to Watch
- Next week: BLS and Census catch-up releases begin; expect elevated volatility around prints.
- Nov 20: September Employment Situation (rescheduled).
- Next week: Nvidia earnings-impact extends across semis, hyperscalers, and AI-levered software.
- December FOMC: Market pricing split on a cut; guidance will matter as much as the decision.
If AI Exposure Is Core to Your Strategy
Make sure the team's skills keep pace with your portfolio emphasis. A quick way to survey the current toolset: AI tools for finance.
Bottom line: Until the data gap closes, assume less policy help, a higher risk premium for lofty multiples, and fatter tails around event risk. Adjust sizing, sharpen hedges, and keep cash optionality high.
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