US close: Stocks higher as investors shrug off government shutdown concerns

(Sharecast News) - Major indices closed higher on Wednesday as market participants remained hopeful that the Federal government shutdown would be brief. At the close, the Dow Jones Industrial Average was up 0.09% at 46,441.10, while the S&P 500 advanced 0.34% to 6,711.20 and the Nasdaq Composite saw out the session 0.42% firmer at 22,755.16.

The Dow closed 43.21 points higher on Wednesday, extending gains recorded in the previous session as the blue chip index extended its record-setting rally another session.

The Republican-controlled Senate failed to pass a temporary spending bill, with Democrats seeking to use the measure to extend healthcare tax credits. The Congressional Budget Office estimated that around 750,000 federal employees will be furloughed, while Donald Trump has warned that mass permanent job cuts would likely follow.

While markets have historically weathered shutdowns with limited volatility, this episode was seen as having the potential to prove more disruptive given elevated valuations, inflation risks, and signs of labour market softening. The length of the shutdown was expected to be a key focus, particularly with the Federal Reserve's next policy meeting scheduled for late October.

Although JD Vance said the Trump administration would "have to lay some people off if the shutdown continues", he stated that no final decisions had been made. Vance also said that he doesn't think the shutdown was "going to be that long", adding that there was "some evidence that moderate Democrats are cracking a little bit".

The Labor Department said it will suspend virtually all activity, including Friday's nonfarm payrolls report, leaving both investors and the Federal Reserve partially "flying blind", with markets currently pricing in a second rate cut later this month and another in December. In the NFP report's absence, today's ADP private payrolls report will likely carry greater weight, with the data revealing that US private sector employment unexpectedly fell in September, declining by 32,000 from August, versus expectations for a 45,000 increase. Meanwhile, the August figure was revised to show that 3,000 jobs were lost rather than 54,000 created.

Small businesses with fewer than 50 employees shed 40,000 jobs, while medium businesses with between 50 and 499 employees lost 20,000 jobs, and large businesses with more than 500 employees added 33,000 jobs. The data also showed that year-over-year pay growth for job-stayers was little changed in September at 4.5%. Pay gains for job-changers slowed to 6.6% from 7.1% in August, led by leisure and hospitality and financial activities.

Elsewhere on the macro front, US mortgage applications fell sharply last week, snapping a three-week rally, according to the Mortgage Bankers Association, as rising Treasury yields pushed borrowing costs higher. For the week ended 26 September, total mortgage application volume dropped 12.7% from the prior week, matching the steepest weekly decline in nearly a year and trimming a combined 42% surge in applications over the previous three weeks. Applications to refinance a mortgage, which are more sensitive to short-term rate movements, plunged 21% week-on-week, while applications to purchase new homes eased by 1%.

Still on data, S&P Global's US manufacturing PMI slipped to 52.0 in September from 53.0 in August, marking a modest slowdown from a three-year high and matching both the flash estimate and market consensus. New factory orders rose for a ninth consecutive month, though the pace of growth lagged the survey average, weighed down by weaker export demand. S&P said recent US tariffs had sparked trade tensions with key partners, leading to a drop in sales to Canada and Mexico. Output growth also eased during the month, driven by faster backlog depletion as firms worked through existing orders.

Finally, the Institute for Supply Management's manufacturing PMI rose to 49.1 in September from 48.7 in August, slightly ahead of market expectations but still marking a seventh straight month of contraction. The modest improvement was driven by a rebound in production, which climbed to 51.0 from 47.8, offset by a decline in new orders to 48.9 from 51.4. Input price pressures eased slightly to 61.9 from 63.7 but remained elevated, with respondents citing tariffs, high costs, and weak demand as key headwinds.

Reporting by Iain Gilbert at Sharecast.com