Gridlock, Gold, and $900B in Flows

Markets opened lower as Washington gridlock pushed the government into shutdown. 

The Dow slipped 0.4%, the S&P 500 lost 0.5%, and the Nasdaq fell 0.5%. The dollar weakened while gold spiked to another record before easing back, and Treasury yields edged higher.

The most immediate fallout is a data blackout. 

Friday’s September jobs report will not be released if the shutdown drags on, and inflation readings due mid-October would also be delayed. That leaves the Fed without its two most important signals heading into the October 28–29 meeting. 

With official releases frozen, traders are leaning heavily on private-sector numbers like ADP, expected to show hiring slowed to 45,000 in September from 54,000 in August, and ISM manufacturing due later today. 

But these measures are noisier, meaning market reactions could be sharper.

That lack of clarity is already creeping into pricing. 

Options markets may begin demanding a volatility premium, with investors bracing for sharper swings even if spot equities look calm at first. And sector moves are showing early divergence: federal contractors and AI-linked chip stocks are under pressure, while defensive plays like gold and healthcare are drawing fresh inflows.

Investor Signal

Shutdowns rarely alter the market’s long-term path, but this one strips away visibility at a critical moment for Fed policy. With investors and the Fed both flying on thinner data, every secondary signal carries more weight, and that makes for bumpier skies ahead.

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The U.S. government shut down at midnight after Congress failed to pass a stopgap funding bill. 

Hundreds of thousands of federal workers are expected to be furloughed, while essential staff…from TSA screeners to air-traffic controllers to active-duty military… will remain on the job without pay.

This episode carries sharper edges than prior shutdowns. 

The Trump administration is casting it as a chance to reduce federal headcount, directing agencies to prepare cuts in force. 

Two major unions have already filed lawsuits challenging the legality of such moves. The Office of Management and Budget estimates as many as 750,000 workers could be sidelined, disrupting operations from CDC disease surveillance to workplace-safety inspections.

Historically, shutdowns have been more political theater than structural change. 

Markets often looked through them, with volatility muted once funding deals were struck. 

This time is different: the push to shrink the federal workforce reframes the lapse as policy, not just a standoff, raising the risk of longer-term operational and economic consequences.

Markets are already adjusting. The Labor Department has paused all economic data releases, including Friday’s jobs report, stripping the Fed of one of its most important policy inputs heading into its Oct. 28–29 meeting.

Investor Signal

The shutdown doesn’t just freeze government functions, it blinds markets at a critical juncture. With no payroll data, traders will lean more heavily on secondary indicators and Fed commentary, which are noisier and harder to anchor. 

Past shutdowns were quickly shrugged off. This one could leave deeper marks, with sharper swings in rates and equities until clarity returns.

McKinsey just upped its forecast for AI infrastructure spend to more than $5 trillion over the next five years. 

Announcements from OpenAI, Nvidia, Oracle, and others highlight capital pouring in at breakneck speed, with private investors and real-estate funds piling into “hyperscaler-adjacent” projects. 

For many, data centers are becoming the new real estate frontier, the picks and shovels of the AI boom.

But the demand side tells a murkier story. 

Fewer than 15% of corporate AI pilots succeed, raising the risk of overbuilding capacity that may sit underutilized. 

Unlike prior cloud waves anchored by Amazon, Microsoft, and Google, today’s projects often lean on shakier foundations: remote geographies with uncertain prospects, debt-heavy financing through private credit and sovereign wealth funds, and counterparties ranging from GPU-rental “neoclouds” to still-unprofitable AI labs.

The parallels to the late-1990s telecom bubble are hard to miss. 

Billions once poured into fiber that sat dark for years, and this time vendor financing from Nvidia plus interlocking investments between labs and lenders could compound systemic risk if projects stall.

Investor Signal

The critical variable is timing. If enterprise adoption catches up, today’s $50 billion-per-gigawatt buildouts will be remembered as bold table stakes. If not, investors could be left with stranded assets in remote locations and limited resale value. 

Watching power contracts, financing structures, and the mix of debt versus equity will be key to separating the winners from the casualties of another infrastructure mania.

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Fermi, a newly formed power producer aiming to supply the AI data center boom, debuted on public markets Tuesday. 

The company priced its IPO at $21 a share, valuing it at $13 billion despite being less than a year old and having no revenue to date. 

Structured as a REIT with dual listings in New York and London, the startup is pitching itself as the energy backbone of the AI revolution. Its vision: the world’s largest data center campus on 5,236 acres in the Texas Panhandle, powered by natural gas, nuclear reactors, solar, and batteries. 

By 2038, Fermi claims its facilities could generate five times the electricity of the Hoover Dam.

The pedigree of its backers…including former Texas Governor Rick Perry, his son Griffin, and energy financier Toby Neugebauer…lends weight, as does strategic access to gas fields and pipelines. 

Turbine supply is secured at a time of global shortages, and a long-term letter of intent with an undisclosed data center tenant suggests early demand is real.

But the risks are immense. Nuclear reactors routinely take a decade or more to build, often well over budget, and Fermi’s first isn’t expected online until 2031. 

Revenues likely won’t arrive until 2027, meaning years of reliance on capital markets to finance a project that could cost tens of billions. 

Analysts see paths ranging from Amazon- and Tesla-style breakouts to WeWork-scale implosions.

Investor Signal

Fermi’s debut is less about one company than the appetite for AI’s power infrastructure. 

Early buyers are effectively betting that the AI boom is durable, and willing to pay for premium electricity. The stock is likely to be volatile, but as a pure play on AI electrification, it may become a speculative proxy for conviction in the sector itself.

Exchange-traded funds…low-cost, tax-efficient investment vehicles that trade like stocks…have become the dominant force in U.S. markets. 

Investors have poured more than $900 billion into ETFs so far this year, putting the market on pace for its second straight year of record inflows.

Total assets have swelled to more than $12 trillion, up from $10.3 trillion at the start of 2025. 

The biggest winners remain Vanguard, BlackRock, and State Street’s flagship S&P 500 trackers, while the fastest grower has been BlackRock’s Bitcoin ETF, which has already attracted nearly $24 billion in 2025 alone.

A fresh catalyst is coming from Washington. 

The SEC has signaled support for dual-share class structures that will let investors convert mutual fund holdings into ETF shares without triggering taxes. 

Dimensional Fund Advisors is first to market, but executives expect the change to unlock a wave of legacy mutual fund money migrating into ETFs.

Flows are also broadening beyond plain index trackers. Structured-protection products and options-based income strategies are pulling billions as advisors tailor portfolios for retiring boomers. 

Active ETFs, once negligible, now account for more than a third of new inflows, a stark shift that underscores the wrapper’s appeal across passive and active strategies alike.

Investor Signal

The ETF wrapper is no longer just about cheap indexing. Regulatory momentum and structural advantages are cementing ETFs as the default vehicle for capital flows. 

As tax-free conversions accelerate, the drain on mutual funds will deepen, and liquidity will increasingly follow the ETFs that draw the biggest inflows.

Mortgage refinance demand plunged 21% last week as rates bounced back to a three-week high. 

The average 30-year fixed rate climbed to 6.46% from 6.34%, dragging overall mortgage applications down nearly 13%, according to the Mortgage Bankers Association.

The hit was sharpest in refinancing. Conventional refis dropped 22% and VA refis fell 27%. 

The average loan size on new refis sank by $80,000 in just two weeks as higher rates stripped away the incentive for larger borrowers to lock in savings. 

Even with the pullback, refi volume remains 16% above last year’s levels, a reminder of how volatile rate swings have kept the market on a short fuse.

Purchase activity also softened, slipping 1% after three straight weeks of gains, though still running 16% above last year. Housing supply remains tricky: August marked the first monthly decline in listings this year, as more sellers pulled homes even while time on market lengthened.

Investor Signal

Mortgage demand is showing how fleeting each window of rate relief can be. With the government shutdown likely to delay Friday’s jobs report, the path of Treasury yields, and by extension mortgage rates, could become harder to gauge. 

For investors, that leaves the housing trade a high-beta play on incoming data. REITs and housing-linked equities may swing sharply on rate expectations, while lenders face a refi market that looks tapped out unless yields break meaningfully lower.

Markets entered October with more tension than clarity. 

A government shutdown has frozen data releases, gold and volatility are flashing signals, and ETF flows are rewriting the structure of investing itself. 

Layer on the AI infrastructure boom… from trillion-dollar data center bets to Fermi’s audacious IPO…and investors face a landscape where conviction is colliding with uncertainty.

The common thread: visibility is shrinking just as capital allocation decisions get bigger. 

Shutdowns blind the Fed, debt-heavy financing tests the AI buildout, and mortgage demand reminds us how fragile each window of relief can be. 

In this environment, sharper swings aren’t noise, they’re the cost of flying without instruments.

For a closer look at how markets historically react when Washington stalls, see WSJ’s historical view on past shutdowns.