Markets Confront Shutdown, Slowing Jobs, and Bank Rule Shifts

Matthew Rubin Chief Investment Officer

 

1. The U.S. government entered its 21st shutdown since 1976, furloughing workers and sparking short-term uncertainty, though history suggests there will likely be limited long-term economic or market impact.¹
2. ADP reported a loss of 32,000 private-sector jobs in September, signaling further signs of labor market slowdown.²
3. Large U.S. lenders may see capital requirements flatten or decline as regulators move forward with the most significant bank rule overhaul since 2008.

 

1. Government Shutdown Begins as Funding Deal Fails

At midnight on September 30th, the federal government shut down after lawmakers failed to pass a short-term funding measure. The Senate vote on a Republican-backed resolution fell short, leaving roughly 750,000 federal employees furloughed and nonessential agencies closed.¹ Essential services, including Social Security, Medicare, Medicaid, law enforcement, and air travel safety, remain in operation.

The central dispute was health care funding. Democrats pressed for extending Affordable Care Act tax credits and reversing cuts to Medicaid, while opposing reductions to health agencies.¹ Without agreement, federal operations will remain limited until a new funding bill is approved.

Shutdowns are not new — this marks the 21st since 1976.¹ Past closures typically slowed growth temporarily but had little lasting impact, as furloughed workers receive back pay. Economists estimate each week of disruption can reduce quarterly GDP by 0.1% to 0.2%, a small impact relative to the size of the U.S. economy.¹

For markets, shutdowns have historically caused brief volatility but little long-term damage. The S&P 500 has often recovered in the months following past closures.¹ With strong gains this year, investors may see near-term pullbacks, but broader drivers such as earnings, growth, and interest rates remain more important.

2. Private-Sector Jobs Decline in September as Hiring Weakens

Last week’s ADP employment report showed the U.S. shed 32,000 private-sector jobs in September, a steeper decline than economists expected.² Forecasts had called for a 45,000 gain, resulting in disappointment and suggesting that momentum in the labor market continues to fade.

The losses followed a revised drop of 3,000 jobs in August.² Leisure and hospitality saw the largest decline, down 19,000 roles, while education and health services added 33,000 positions.² Hiring trends also split by employer size: Small firms with fewer than 50 employees cut 40,000 jobs, while large companies with more than 500 workers added 33,000.²

The weaker report comes as the Federal Reserve has already begun easing policy, lowering rates by a quarter point last month while signaling more cuts ahead.² With the government’s official September jobs report delayed by the ongoing shutdown, economists are watching ADP’s figures more closely than usual. While ADP data can diverge from the Labor Department’s numbers, its revised methodology has offered earlier signals of labor market shifts in recent months.

3. Big Banks Poised for Relief as Regulators Ease Capital Rules

Last week, the Federal Reserve’s top regulator signaled they are preparing the most sweeping overhaul of U.S. bank capital rules since the 2008 Financial Crisis, in concert with other banking agencies. The effort, driven by President Trump’s appointees, aims to streamline requirements that the banking industry has long criticized as excessive.

The plan narrows a 2023 proposal under the “Basel III Endgame” that would have raised capital by nearly 20%.³ Instead, regulators are expected to adopt a “capital-neutral” approach that avoids industry-wide increases while adjusting how capital is allocated across institutions. Potential changes include easing the surcharge on global systemically important banks, tailoring leverage ratios, and making stress tests more transparent.³

Major lenders such as JPMorgan, Bank of America, and Citigroup, which together hold roughly $1 trillion in capital, anticipate that requirements could remain flat or decline, freeing up billions for lending, trading, dividends, and buybacks.³

Supporters argue that reducing red tape will boost economic activity. Critics counter that weakening safeguards may leave the system vulnerable if growth slows, with some estimates warning capital levels could fall by as much as $200 billion.³

For the period ending 10/3/25.
* Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ Bloomberg
² ADP Employment Report
³ Reuters

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