The Shutdown Economy Nobody Talks About: When Power Cuts the Data Feed

We're three weeks into a government shutdown and Wall Street has collectively decided this is fine.

Which is perhaps the most honest moment American markets have had all year.

Last Friday—the only day this month we got actual economic data—September's inflation report landed like a gentle breeze. Headline CPI came in at 3% year-over-year, below expectations of 3.1%, with monthly prices up just 0.3% versus the forecast 0.4%. Good news, right? The kind of news that usually sends bond markets into a frenzy and makes fund managers feel clever.

Equities rose. Check.

But here's what nobody's really discussing: market sentiment had already cooled before the data dropped—consumer sentiment was tracking at 53.6, down 2.7% from September, and people's long-term inflation expectations have been creeping up. Americans aren't buying the cooling narrative. They're seeing prices stay high at the pump, the grocery store, everywhere. And now they're wondering if maybe—just maybe—the Fed's rate cuts won't feel like salvation; they'll feel like rearrangement deck chairs.

The shutdown is doing something subtle but corrosive: it's starving the market of information at precisely the moment when everyone needs it most. Gold hit record highs and is up more than 60% this year. Treasury yields dropped to six-month lows—that's not confidence. That's insurance buying. U.S. 10- and 30-year yields hitting six-month lows while stocks climb isn't a rational market structure. It's a market that's stopped listening to its own signals.

The Fed's next moves are baked in. The market expects rate cuts next week and again in December. Nobody's arguing anymore. The central bank has shifted from commanding the room to simply confirming what everyone already knows. And when rate cuts become inevitable and boring, that's when you know something's wrong with the entire premise.

The Trade War, Redux (With Feeling)

Trump said on Friday that his tariff policy built up the stock market, posting in all caps: "THE STOCK MARKET IS STRONGER THAN EVER BEFORE BECAUSE OF TARIFFS!"

I'll wait while you sit with that sentence.

To be fair, he's not entirely wrong—not in the backwards-logic way markets sometimes work. Investors' fears surrounding U.S. trade relations with China were mitigated after the White House said Thursday that Trump and Chinese President Xi Jinping will participate in a bilateral meeting in South Korea next week. Ford Motor surged 10.7% following its third-quarter earnings beat. Money moved where there was a narrative to follow.

But then Trump announced an end to all trade negotiations with Canada over an ad that featured former President Ronald Reagan "speaking negatively" about tariffs.

Let that land too. A trade negotiation—with your closest ally and largest trading partner—ended over a historical political advertisement.

Bank stocks jumped on hopes that more rate cuts would stimulate activity, with JPMorgan, Wells Fargo, and Citigroup each rising 2%. They rose on the hope of stimulus from rate cuts. Not because lending margins improve, not because deposits flow back, but because cheap money might—might—inflate away their problems. That's pharmaceutical-grade hopium.

Meanwhile, goods inflation is starting to move higher, which could be the result of tariffs. The pipes are just beginning to show pressure. We're not seeing the full impact yet because the shutdown's data blackout is like closing your eyes during a car crash—you don't feel the damage until the eyes open again.

Bitcoin's Long October: A Masterclass in Cognitive Dissonance

Last Thursday, Bitcoin rallied 2.7% to $110,700 after President Trump pardoned Binance founder Changpeng Zhao, easing fears of U.S. regulatory crackdowns.

A sitting president just used executive power to forgive a cryptocurrency executive.

In a normal timeline, this would spark endless debate about regulatory capture, about what it means for a sitting administration to signal they're friendlier to one industry than others, about the messaging this sends. Instead, crypto traders interpreted it as a buy signal and moved on. Which, honestly, says everything you need to know about how much people care about principles versus price.

But here's the thing: Bitcoin is experiencing its worst October since 2015, down 5% month-to-date and trading near $107,000. October is supposed to be "Uptober"—the month Bitcoin historically rallies hardest. The historical average for October sits around 19.8%, next to November's 42% which is the asset's strongest month. Instead, we're getting whipsawed volatility, on-and-off buying from long-term holders who should be conviction players.

This is market exhaustion dressed up as consolidation.

JPMorgan upgraded Coinbase to overweight and lifted its price target to $404, citing its subscription services and DeFi platform. Translation: the bank is front-running institutional adoption because they're tired of explaining to clients why they don't have crypto exposure. Coinbase ticked up 3% in premarket trading. Circle, Galaxy Digital, and crypto mining stocks all moved higher in pre-market. It's the old pattern: when institutions finally capitulate and jump in, retail's already looking for the exit.

What's Actually Going On

Strip away the noise and here's the honest picture:

Markets appear complacent to shifting ground with valuations returned to stretched levels, financial conditions eased, and financial stability risks remaining elevated amid stretched asset valuations, growing pressure in sovereign bond markets, and the increasing role of nonbank financial institutions.

The IMF literally just released its Financial Stability Report warning that risk asset prices are well above fundamentals, raising the risk of sharp corrections, and stress tests reveal greater interconnectedness and maturity mismatches among banks and NBFIs that could amplify shocks.

We're in the part of the movie where everyone keeps dancing because the music's still playing, but someone just whispered that the band's about to stop. The shutdown masked this for three weeks—no data meant no reminders of underlying weakness. Now that data's trickling back in, and the market's decision is to party harder, betting that the Fed will make it all okay.

The Federal Reserve Bank shared a plan to deliver smaller increases in bank capital holdings for Wall Street's largest lenders, moving away from the post-2008 regulatory regime. Deregulation, rate cuts, tariffs that might pinch inflation, a government barely functioning. This is the setup for either the greatest wealth transfer upward we've seen in a decade, or the most expensive reset.

History suggests it'll be both.

The market doesn't care which. It just wants the next quarter's data to look good.