Rate Cut Bets Anchor US Stocks Amid Government Shutdown and Tariff Noise

The Dow Jones Industrial Average (DJIA) began the week on shaky ground, briefly slipping after opening near a record high above 46,800 on Monday. Despite the initial caution, the overall mood in the market remains tilted toward the upside, largely driven by the expectation of continued monetary easing from the Federal Reserve (Fed).

Equity markets are strongly supported by the anticipation of further interest rate cuts. Rate futures indicate a high probability—around 95%—that the Fed will trim rates by 25 basis points at its October 29 meeting. Furthermore, there is over an 80% chance of a third consecutive cut on December 10, underscoring the market’s conviction that lower borrowing costs are coming. This bullish rate outlook persists even as key economic data, such as the Nonfarm Payrolls (NFP) report, is unavailable due to the ongoing US government shutdown. Investors are working under the assumption that the Fed will have to base its decisions on existing data, which suggests a path toward more cuts.

Meanwhile, a second week of the government shutdown has yet to significantly rattle investors, who appear to be shrugging off the political deadlock for now. However, the Trump administration did add a new source of volatility with a renewed tariff threat. The President declared via social media the US intends to impose an additional 25% tariff on all foreign-made medium and heavy-duty trucks, set to begin on November 1. This announcement follows a pattern of numerous tariff threats issued over the year, many of which have been walked back or delayed, leading investors to increasingly tune out the daily social media-delivered trade-war rhetoric.

In corporate news, OpenAI announced another massive investment deal, this time with AMD, highlighting the insatiable demand for calculation hardware by the large language model giant. AMD’s stock saw a strong daily bounce on the news, though the broader momentum of the AI investment cycle appears to be maturing.

Looking ahead, this week’s economic calendar is relatively light, but investors will focus on the release of the Federal Open Market Committee’s (FOMC) Meeting Minutes on Wednesday for deeper insight into the Fed’s internal discussions from its last rate decision. Additionally, a pre-recorded public message from Fed Chair Jerome Powell will be released on Thursday.