Why US Stocks Fell Despite the End of the Government Shutdown

Relief Rally That Never Showed Up: Risk sentiment initially improved after the partial US government shutdown was resolved, following President Trump’s approval of a funding deal that keeps the Department of Homeland Security financed through February 13, while other federal agencies are funded through the end of the fiscal year in September. Yet that relief failed to translate into gains for US equities, which continued to slide despite the political breakthrough.


Treasury Supply Weighs on Sentiment

Adding pressure, the US Treasury announced that next week’s quarterly refunding will total $125 billion in new debt issuance. Officials confirmed that auction sizes will remain unchanged in coming quarters, reinforcing concerns about persistent supply in the bond market. The prospect of heavy issuance kept yields elevated and reduced appetite for risk assets, including stocks.


Mortgage Demand Slumps Sharply

Fresh data showed renewed weakness in the US housing market. Mortgage applications fell 8.9% in the week ending January 30, with home purchase applications plunging 14.4% and refinancing activity down 4.7%. The average 30-year mortgage rate edged slightly lower to 6.21%, but the decline was not enough to revive demand, underscoring the sensitivity of housing activity to elevated borrowing costs.


Earnings Season Hits Full Throttle

Markets are now firmly focused on earnings and economic data. Around 150 S&P 500 companies are set to report results this week, marking the peak of the Q4 2025 earnings season. So far, more than 80% of companies have beaten expectations, with earnings exceeding forecasts by roughly 8.4%. That marks the tenth consecutive quarter of year-on-year earnings growth. Excluding the so-called “Magnificent Seven” mega-cap technology firms, profits are still expected to rise by a solid 4.6%, highlighting broader corporate resilience.


Rates and Bonds Send Mixed Signals

US Treasury futures slipped, pushing the 10-year yield up one basis point to around 4.28%. Strong services sector data and looming bond auctions added upward pressure on yields. However, losses were partially capped by weaker private-sector hiring data, which reinforced expectations that the Federal Reserve may still have room to adopt a more accommodative stance later this year.


Bond markets were also unsettled by last week’s political developments, including President Trump’s nomination of Kevin Warsh as Federal Reserve Chair. Warsh is widely viewed as more hawkish, with a track record of emphasizing inflation risks, adding another layer of uncertainty to the policy outlook.


Global Markets Split

Global equities delivered a mixed performance. Europe’s Euro Stoxx 50 edged higher by 0.23%, while China’s Shanghai Composite gained 0.85%. In contrast, Japan’s Nikkei 225 fell 0.78%, reflecting uneven regional momentum and lingering global uncertainty.


Despite the end of the US government shutdown, markets remain caught between strong earnings, soft pockets of economic data, heavy bond supply, and uncertainty over future monetary policy. With investors awaiting key labor data and further signals from the Federal Reserve, volatility remains firmly in play—and political relief alone is no longer enough to lift US stocks.