Stock markets are at all-time highs even as the U.S. government shutdown continues to cloud the economic picture. The government shutdown, which started last week, has created a data blackout, leaving investors to rely on unofficial reports and statements from Federal Reserve officials. For the week ahead, market sentiment is expected to remain influenced by this limited economic visibility, which is proving not to be a bad thing.

The Labor Department’s pause on virtually all activity blocked last Friday’s release of the September nonfarm payrolls report. Although that removes a factor that could lend pressure to stocks, it lessens the amount of economic data the Federal Reserve can take into account for its interest rate decision at its October meeting later this month. Markets largely expect the central bank will lower its key interest rate by another 25 basis points according to the CME FedWatch tool.

This morning, stocks are extending last week’s solid gains with the benchmark S&P 500 (SPX) and the Dow Industrial Index ($DJI) both settling at record highs on Friday. Market participants will be listening closely to any comments from Fed officials for clues on monetary policy and economic health. A multitude of Fed members will be speaking this week so most of market action may be related to their commentary.

A few key companies are set to report their third-quarter results, including PepsiCo (PEP) and Delta Air Lines (DAL). Strong performance could provide a positive catalyst, while any disappointing figures could weigh on the broader market. The real fireworks may begin next week when the earnings season kicks off with all of the major financial companies reporting.

The recent market strength has been heavily concentrated in a handful of mega-cap technology stocks, often dubbed the "Magnificent Seven," fueled by optimism around artificial intelligence (AI). However, last week saw a slight divergence, with the Dow Jones Industrial Average rising while the tech-heavy Nasdaq-100 (NDX) pulled back on Friday. Despite the tech concentration, the rally appears to be broadening out. Utilities and Industrials hit new highs last week, suggesting the AI theme is benefiting a wider range of sectors.

The market will be closely watching consumer sentiment data along with corporate earnings reports for signs of broader economic health. Investors will need to weigh the persistent strength of AI-driven tech against broader economic risks, including the potential for inflation to remain elevated. The ‘Risk-On’ sentiment continues for stocks, Gold (/GC), and Bitcoin (/BTC) with little concern for the government shutdown or high valuations. Could a relatively quiet week provide volatility, or will investors continue their push into what is working?

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