The US government shutdown has ended, but the economic data gap continues to worry investors, especially in tech stocks with high interest rate sensitivity. Concerns that the missing data could delay Fed interest rate cuts caused the Nasdaq to experience its sharpest sell-off in a month. The index has fallen approximately 5% since its October peak.
Data Gap: “Driving in the Fog”
During the 43-day shutdown; Many critical data points, from futures positions to agricultural forecasts, and especially employment and inflation data, have either not been collected at all or will not be released.
White House economic adviser Kevin Hassett stated that October inflation data may not be released and that the employment report will not include the unemployment rate. Reason: The household survey that calculates the unemployment rate could not be conducted.
Fed Chairman Jerome Powell likened this situation to “driving in the fog,” saying that policymakers would therefore slow down—meaning they might avoid interest rate cuts.
Interest Rate Expectations Are Being Lowered
The probability of a 25 basis point interest rate cut in December, which was considered certain a month ago, has now fallen to 50%. This situation is accelerating sell-offs in technology stocks, which have risen more than 20% throughout the year. The S&P 500’s 12-month forward price-to-earnings ratio is 22.8, well above its long-term average of 18.8. Following the rally in technology stocks, many investors are turning to profit-taking. Palantir and Oracle have both lost approximately 15% this month, while Nvidia has lost almost 8%. Horizon Investment Services CEO Chuck Carlson said, “Even a small downward move in sectors that have delivered big gains throughout the year could create a sell-off chain.”
A ‘Blind Flight’ Towards 2026
The data gap has led to the increasing importance of private sector surveys, which are generally less followed. These surveys show that spending remains strong, but some indicators show an increase in layoffs.
Markets continue to expect at least three interest rate cuts by the end of 2026; however, Fed officials are becoming increasingly cautious. This week, San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari made hesitant statements regarding rate cuts. BNY’s strategy director, Bob Savage, said, “The Fed is flying blind, just like us.” Savage stated that the real uncertainty lies in 2026, therefore emphasizing that the Fed’s interest rate projections (dot plot) will become as important as the decision itself.
A Volatile Period in the Markets
Some investors see the declines as a temporary setback in the rally driven by AI investments. However, signs indicate that volatility may increase in the short term. The US dollar is losing value along with stocks, and this is being discussed as a sign that global capital is moving out of the US. Bitcoin, which foreshadowed market weakness at the beginning of the year, is again below $100,000.
Michael Schulman of Running Point Capital Advisors said, “We could see sharp fluctuations in the market until Thanksgiving. There’s a lot waiting to be resolved.”
