Insights 
VT 
Impact of the US Government Shutdown
US equities have shown an uptick since the last report. Key factors influencing markets include the Fed’s monetary policy stance, the ongoing US Government shutdown, and upcoming earnings reports.
The Fed’s recent meeting minutes indicate potential further easing, with market expectations for a 25 basis points rate cut in both October and December. A divide exists among Fed policymakers about the pace of monetary easing. The Fed’s September meeting minutes could impact market support, with significant focus on Fed Chairman Powell’s upcoming remarks.
The US Government shutdown has entered its 8th day with no resolution in sight, creating market uncertainty. The delay in the US employment report for September adds to market concerns, potentially affecting US stock markets if the shutdown continues.
Earnings season is ramping up, expected to reveal effects of US tariffs on company performance. Big banks like JPMorgan and Goldman Sachs are set to release earnings reports soon. Positive earnings could lift market sentiment and drive US stock markets upward.
The S&P 500 has reached new all-time highs but shows signs of needing a breather. The RSI indicator has dropped below 70, suggesting a slight easing in bullish sentiment. Further upward movement could target the 7000 resistance line, while a bearish trend requires breaking existing support levels.
Current Market Outlook
We recall a time when the market was pricing in multiple Fed rate cuts amid a power struggle between doves and hawks. Today on October 8, 2025, the situation is quite different, with the Fed Funds Rate holding firm at 4.75% for the past six months to ensure inflation stays down. With the latest September CPI data showing core inflation has cooled to 2.9%, traders are now using derivatives to price in a potential pivot to a rate cut in the first quarter of 2026, creating tension ahead of the Fed’s meeting minutes next week.
The concerns about a government shutdown mentioned in the past are particularly relevant again this month. A new budget deadline is looming on October 31, 2025, and legislative gridlock is increasing the probability of a shutdown. We saw during the 35-day shutdown of 2018-2019 that such events can temporarily cost the economy billions and spike short-term volatility, a factor that traders should be hedging against with protective put options on major indices.
Earnings season is again upon us, but the focus has shifted from the trade tariffs of the Trump era to the impact of today’s higher borrowing costs on corporate profits. The big banks are set to report next week, and analysts are forecasting a slight 2.2% year-over-year earnings growth for the financial sector, a significant slowdown from previous quarters. Any negative surprises from bellwethers like JPMorgan could trigger broad market declines, so traders are buying straddles to play potential large price swings in either direction.
Unlike the overbought, bullish market described previously that was pushing all-time highs, the S&P 500 is now struggling below the 6420 level after a sharp correction last month. The CBOE Volatility Index (VIX) is currently elevated at 24, reflecting much higher market fear than in the past. This suggests that selling call options with near-term expiration dates could be a viable strategy to collect premium in what appears to be a nervous, range-bound market.
