A government shutdown. A weakening labor market. Stubborn inflation. <\/p>\n
None of it has seemed to matter for the stock market. At least not yet. <\/p>\n
Stocks closed moderately lower Tuesday, but it was the first down day in more than a week. The broad S&P 500 and tech-heavy Nasdaq indexes have seen more than 30 record closes this year. The major indexes were higher Wednesday, with the Nasdaq leading the way. <\/p>\n
With other parts of the economy showing strain, the market gains are fueling concerns about an economy in which the wealthiest U.S. households continue to thrive even as lower- and middle-income families languish<\/a>.<\/p>\n \u201cIt points out the bifurcation of the economy,\u201d said Steve Sosnick, chief strategist at Interactive Brokers financial group.<\/p>\n Two forces have been driving much of the market\u2019s recent runup: artificial intelligence investments, and the prospect of lower interest rates. <\/p>\n Sosnick pointed to calculations<\/a> showing that spending on building out AI infrastructure, like data centers, is now responsible for an enormous part of economic growth this year. <\/p>\n That spending hasn\u2019t led to much new job creation in the overall economy: 2025 is on pace to be one of the worst years for new payrolls added this century. The government shutdown has delayed the release of official jobs data for September, but on Tuesday, private equity giant Carlyle said its internal indicators suggested the U.S. economy added just 17,000 new payrolls last month. Last week, payrolls processor ADP released a report<\/a> that also showed a significant jobs-market slowdown. <\/p>\n But the AI boom has helped stock investors grow even wealthier. According to data cited by Barron\u2019s investment magazine<\/a>, the seven tech stocks that comprise the so-called \u201cMagnificent 7\u201d<\/a> were responsible for approximately two-thirds of the S&P 500\u2018s 3.65% gain last month, and have powered about 41% of the index\u2019s nearly 15% gain this year.<\/p>\n \u201cI think there\u2019s always a little bit of K-shaped nature to the economy,\u201d Sosnick said. \u201cBut it went from looking like a small \u2018K\u2019 to a capital \u2018K.\u2019\u201d <\/p>\n Meanwhile, economic uncertainty shows no signs of letting up. <\/p>\n Government shutdowns typically have a limited impact on markets and the economy<\/a>. This time could be different, though. <\/strong>As the shutdown enters its second week, the White House has begun threatening mass layoffs, while President Donald Trump and other GOP officials are questioning the government\u2019s obligation to issue back pay. With government spending continuing to represent a significant share of the economy, either of these developments could have consequences for growth should they be enacted. <\/p>\n Trump also continues to roll out tariff plans, only to delay their implementation. The latest example is a proposed tariff on imported trucks that was slated to go into effect Oct. 1, before it was delayed a month. <\/p>\n The recent weak jobs data have been enough for the Federal Reserve to conclude that it must lower interest rates to support hiring. Investors now put the odds that the central bank will announce at least two more rate cuts at its final two meetings this year at more than 80%. Yet some Fed members also remain concerned about the pace of inflation, which remains well above the central bank\u2019s 2% target. Carlyle also found the inflation rate hitting as much as 3.3% in the services sector last month. <\/p>\n The worsening jobs data is likely to exacerbate the economy\u2019s bifurcated nature if lower rates continue to result in stronger stock gains, Sosnick said. A lackluster \u201creal\u201d economy and a booming stock market \u201ccan coexist for quite some time,\u201d he said. On Tuesday, the New York Federal Reserve said<\/a> consumer expectations had deteriorated, with worsening outlooks for both the labor market and inflation. <\/p>\n Tuesday\u2019s stock decline could be a warning, however. The market appeared to be derailed by a report from online news outlet The Information that questioned whether one of the key players in the recent AI runup, Oracle, has the ability to successfully finance its commitment to purchase chips from another AI heavyweight, Nvidia. <\/p>\n