Stocks powered to fresh record highs Wednesday, reversing the prior session’s weakness as rate-cut optimism and another AI-driven surge carried major indexes higher. 

The S&P 500 and Nasdaq both closed at new peaks, led by strength in technology, materials, and industrials. Small caps lagged but finished in the green, with the Russell 2000 climbing about 1%.

The rally underscored investors’ confidence in lower rates ahead, even as market concentration reached new extremes. Nvidia, Microsoft, and Apple now make up more than 21% of the S&P 500. 

The advance came alongside a parallel melt-up in gold, which climbed higher above $4,000 an ounce, continuing the previous day’s milestone and settling at $4,070.50. The move extends gold’s year-to-date gain to roughly 54%, reflecting both safe-haven demand and growing unease about fiscal strain and the Fed’s political vulnerability.

Treasuries were choppy, erasing early gains to finish little changed, while the dollar advanced nearly 1% against major peers. Oil also firmed, with WTI crude up 1.3% to $62.55 a barrel as traders balanced stronger inventories against expectations for renewed stimulus-driven demand.

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Futures were muted early Thursday as traders awaited fresh remarks from Chair Powell to clarify how the Fed will navigate a data blackout and a softening labor market. 

The S&P 500 and Nasdaq each ticked fractionally lower in pre-market trade, while gold hovered above $4,000. With key economic reports delayed by the shutdown, markets are leaning heavily on corporate guidance, particularly from Delta and Pepsi’s reports this morning, for clues on consumer health.

AI stocks continued to dominate sentiment, keeping the S&P 500’s bull run alive nearly three years into its climb. Analysts note that while the rally has delivered an 89% gain since October 2022, that still trails the historical average of prior bull markets. 

Optimism over AI’s long-term potential and the Fed’s pivot to easier policy remain key tailwinds, but some investors, including JPMorgan’s Jamie Dimon, warn that valuations near record highs could invite a correction within the next six to twenty-four months.

The Fed’s October meeting looms large as the central bank continues operating without critical data due to the shutdown. Fed funds futures now price a 93% probability of a 25-basis-point cut later this month, with traders betting the committee will err on the side of additional easing in the absence of key inflation and payroll figures. 

Minutes from the September meeting underscored internal divisions, some members warned that premature cuts could reignite inflation, while others argued for faster action to cushion growth. With the data blackout persisting, policymakers may feel cornered into another cut despite limited visibility.

Abroad, Argentina’s peso crisis deepened as President Javier Milei’s team sought emergency backing in Washington. The IMF’s support remains uncertain, and corruption scandals have eroded his political base ahead of the October 26 midterms. 

In Europe, the ECB reaffirmed its inflation mandate while warning that fiscal slippage across member states could complicate its easing path later this year.

Donald Trump moved closer to his top foreign-policy goal with a breakthrough ceasefire between Israel and Hamas, the first phase of a 20-point peace framework brokered in Egypt. 

The deal calls for the release of all remaining Israeli hostages, a partial Israeli troop withdrawal, and a parallel release of Palestinian prisoners. Egypt and Qatar served as mediators, with Trump signaling plans to visit the region after ratification votes in Jerusalem. 

While Hamas and Israel both hailed the deal as historic, key issues, disarmament, reconstruction oversight, and governance of Gaza, remain unresolved.

Elsewhere, China tightened export controls on rare earths and related technologies, expanding restrictions to cover goods manufactured abroad that contain more than 0.1% Chinese-sourced materials. The move comes ahead of a potential Trump-Xi meeting later this month and is viewed as a strategic reminder of Beijing’s leverage over critical minerals. 

European officials, meanwhile, accused Russia of “hybrid warfare” following a surge in drone incursions, cyberattacks, and election interference across the bloc, part of what Brussels called a “concerted campaign to weaken Europe.”

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The federal shutdown rolled into its second week with little progress in Congress. Republicans continue to push for a stopgap spending bill through late November, while Democrats remain firm on adding healthcare subsidies before reopening the government. 

Over a quarter million federal workers are missing paychecks this week, and two million will go unpaid if the stalemate extends another week. The White House faces growing internal tension as Senate Majority Leader John Thune and other GOP lawmakers warn against mass layoffs or deep cuts to assistance programs that could politically backfire.

The IRS furloughed roughly 34,000 workers Wednesday, nearly half its staff, further constraining the agency’s operations just as tax processing season begins. With air-traffic controllers and military personnel next in line to miss pay on October 15, some lawmakers are weighing emergency measures to cover defense payrolls using previously appropriated Pentagon funds. 

Polls show the public divided over who’s to blame: 53% fault Republicans, 47% Democrats. Both sides, for now, appear content to wait for voter frustration to build.

Fed Speakers: Powell, Barr, Bowman

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Asia: Nikkei 1.77%, Shanghai +1.32%
Europe: FTSE -0.39%, DAX +0.25%

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Markets open Thursday walking a tightrope between euphoria and fatigue. The S&P 500’s climb to new highs underscores how much faith investors are placing in rate cuts and AI optimism, even as gold’s surge above $4,000 signals mounting doubt in the system’s foundations. The result is a paradoxical calm, risk assets and safe havens both rallying, each for opposite reasons.

Traders now face a Fed operating without data, a Congress locked in stalemate, and valuations stretched across equities, credit, and commodities alike. The mood remains risk-on for now, but underneath it runs a quiet sense of unease: that the same forces lifting markets, cheap money, fiscal strain, and speculative belief, could just as easily undo them.