U.S. stocks fall as government shutdown begins; ADP shows drop in private payrolls

U.S. stocks mostly fell Wednesday as the U.S. government shut down, although weak labor data lifted the possibility of another interest rate cut by the Federal Reserve. 

At 09:42 ET (13:42 GMT), the Dow Jones Industrial Average rose 35 points, or 0.1%, while the S&P 500 index dropped 15 points, or 0.2%, and the NASDAQ Composite slipped 65 points, or 0.3%.  

U.S. government shutdown begins 

A government shutdown has begun after a Republican-backed bill to fund the government failed to gain a majority in the Senate.

Senate Democrats almost unanimously opposed the Republican spending bill, calling for the inclusion of continued healthcare subsidies in the legislation. 

The bill – which was earlier this month approved by the House of Representatives – was rejected in a 55-45 vote. The bill required at least 60 “yes” votes to be approved. 

Services ranging from air traffic control to disaster relief are expected to be impacted, while thousands of federal employees face potential furloughs.

Wall Street typically pushes higher during government shutdowns, with stocks having on average risen in the five previous government shutdowns.

But this one could be more troublesome than usual given investors remain concerned about a slowing labor market and more federal layoffs can only add to the worries.

"It may be dangerous for investors to base their expectations of how assets will react on the events of the previous shutdown. This would assume there is no potential for downward movement in stocks and bond yields amid a weaker economy, and lends a false sense of complacency in the case of an extended shutdown," said Peter Corey, Co-Founder and Chief Market Strategist of Pave Finance.

U.S. private payrolls slumped in September - ADP 

However, losses on Wall Street have been cut after the largest decline in U.S. private payrolls in two-and-a-half years during September, according to data released Wednesday by payroll processing firm ADP.

Companies shed 32,000 jobs last month, the biggest drop since March 2023, while August’s numbers were also revised lower, to show a loss of 3,000 jobs compared to the initially reported gain of 54,000 positions.

This negative jobs report has prompted traders to reassess the likelihood of two additional interest-rate cuts from the Federal Reserve before the end of 2025.

This release has taken on additional market importance as the U.S. government shutdown is likely to delay the release of the widely-watched nonfarm payrolls release for September, due on Friday. 

Investors would have been looking to the payrolls print to provide more definitive cues on the labor market – whose cooling was a major motivator of the Federal Reserve’s September rate cut. 

“The key for investors will be whether the next nonfarm payroll report, expected this week, is delayed due to a shutdown. If so, this could spare the market the potential of seeing August’s 22,000 payroll number sink below zero, as is likely given the statistics are already dangerously close. A delay would postpone any investor disappointment and give the market a chance to release more positive data in the interim to soften the impact," added Corey.

Crude falls again 

Oil prices fell Wednesday, adding to two days of declines as investors weighed OPEC+ plans for a larger output hike next month and the outcome of a U.S. government shutdown that could impact economic activity and fuel demand.

Brent futures slipped 1% to $65.39 a barrel, and U.S. West Texas Intermediate crude futures fell 1% to $61.77 a barrel.

On Monday, Brent and WTI both fell over 4% over the course of the first two working days this week.

The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, could agree to raise oil production by up to 500,000 barrels per day in November, triple the increase made for October, Reuters reported earlier this week.

Spot gold hit a record high of $2,875.53 an ounce earlier in the session, while gold futures for December hit a peak of $3,903.45/oz, as the U.S. government shutdown prompted more flows into the safe haven. 

Ambar Warrick contributed to this article