US stock traders are on high alert as they face the dual pressures of an extended government shutdown and persistently lofty market valuations. With political gridlock continuing in Washington and no clear end in sight, traders are preparing for a prolonged period of uncertainty that is already impacting the flow of critical economic data and shaping market sentiment.

A Market in Limbo

The ongoing government shutdown has put a wide range of federal agencies on pause, significantly disrupting the release of key economic reports such as payrolls and inflation figures. These data points are essential for investors and policymakers alike, providing guidance on the health of the economy and shaping decisions at the Federal Reserve. With the shutdown dragging into its third day and no compromise emerging from Congress, the prospect of receiving timely and accurate data is fading.

This creates a unique challenge: the Federal Reserve may be forced to make monetary policy decisions, such as whether to proceed with anticipated interest rate cuts, without the usual arsenal of economic indicators. Instead, officials may have to rely on alternate or second-tier data sources, increasing the risk of policy error and adding further uncertainty to markets.

Valuations Remain Elevated

Complicating matters, the stock market is currently trading at some of its highest valuation levels in recent years. The strong rally seen earlier in 2025 propelled major indices to record highs, driven in part by robust corporate earnings and investor expectations for Fed easing. However, as the shutdown persists and economic data goes dark, questions are mounting about whether these valuations are sustainable in a more uncertain environment.

Investors are particularly wary of the potential for delayed economic pain. Market participants recall previous shutdowns, but this episode is already seen as fundamentally different due to its timing and the scale of impasse. There is an underlying concern that the market’s apparent resilience could mask deeper vulnerabilities that may only become apparent as the shutdown drags on.

Credit Markets Signal Caution

While equity markets have for the most part managed to stay afloat, there are signs of growing caution in other areas. Credit markets, often seen as an early warning system, have exhibited hesitance, especially in short-duration bonds, as participants grow nervous about the government’s ability to meet obligations if the shutdown extends. Issuance in September hit new highs as some companies rushed to secure financing before conditions potentially worsen.

Additionally, merger and acquisition activity, which experienced a strong rebound over the summer, remains active but could be susceptible to fading confidence if the shutdown undermines dealmaking conditions or access to financing.

The Fed’s Next Move: Flying Blind?

The Federal Reserve, which had been signaling a bias toward further interest rate cuts by the end of the year, must now contend with a much murkier picture. Without access to reliable employment and inflation data, officials may feel compelled to proceed as previously indicated in mid-September. However, the risk of making policy decisions without a clear read on economic health is not lost on the market, which is attuned to the possibility of both monetary missteps and surprises.

Should the shutdown continue to mid-October and beyond, one key upcoming data release to watch is the Consumer Price Index, which would be crucial for the Fed’s deliberations. If this also gets delayed, traders warn that the lack of information could fuel further volatility and complicate efforts to assess the sustainability of current valuations.

Looking Ahead: Volatility Likely

As uncertainty lingers, many traders are bracing for increased volatility in both stocks and bonds. The loss of regular economic updates leaves investors without their usual roadmap, magnifying the impact of any news or rumors that do leak into the market. Some believe that the economic disruptions caused by the shutdown could be recovered in subsequent quarters, while others see unique risks this time due to the administrative flexibility being exercised—such as the possibility of outright job cuts rather than temporary furloughs.

Ultimately, until Congress resolves the impasse and the flow of data resumes, markets are likely to remain on edge. In the meantime, investors will be forced to navigate by whatever signals they can find, all while hoping that the underlying strength in consumer spending and corporate earnings will hold up under the strain.

For now, the message from Wall Street is clear: buckle up for a period of heightened uncertainty, as both the economic and political outlooks remain clouded.