S&P500 and Nasdaq 100: Fed Caution and Shutdown Risks Cloud Today’s Stock Market Forecast

S&P 500 Hovers Near Record as Fed Caution and Government Shutdown Risks Weigh on Sentiment

Stocks were little changed Monday as traders took a breather following last week’s record-setting rally, while Federal Reserve officials urged caution on further rate cuts and political gridlock raised the risk of a government shutdown.

The S&P 500 hovered near the flatline after hitting a new high last week, while the Nasdaq Composite added 0.27%. The Dow Jones Industrial Average slipped 12 points, or 0.3%.

The market is digesting multiple headwinds, including a looming federal funding deadline and limited policy flexibility from the Fed. With Congress deadlocked and the September 30 funding deadline approaching, investor focus is shifting to Washington. Senate proposals from both parties failed last week, and Senate Majority Leader Chuck Schumer has called on President Trump to intervene.

What Is the Federal Reserve Signaling About Further Rate Cuts?

St. Louis Fed President Alberto Musalem reaffirmed support for last week’s quarter-point rate cut but cautioned against expecting much more easing. He argued the federal funds rate—now at 4%-4.25%—is near neutral and warned that excessive accommodation could stoke inflation risks. Musalem, a current FOMC voter, emphasized balancing labor market concerns with inflation goals and noted financial conditions remain supportive.

His stance reflects broader Fed caution. Atlanta Fed President Raphael Bostic also dismissed the need for more cuts this year. Nonetheless, CME FedWatch data show markets still pricing in two more rate reductions before year-end, keeping the macro data path in sharp focus for traders.

Which Sectors Are Leading and Lagging After Last Week’s Rally?

Technology led gains on Monday, with the sector up 0.5%, while communication services and consumer discretionary also posted modest advances. Defensive names lagged, with consumer staples dropping 0.67% and utilities falling 0.16%. Energy and materials also trended lower despite recent strength, signaling some sector rotation following last week’s risk-on sentiment.

The market’s narrow gains follow a strong prior week that saw all major indexes—including the Russell 2000—reach fresh highs. Still, the S&P enters a historically weak week, adding to trader caution ahead of key inflation data.

Which Stocks Are Making Headlines?

Pfizer surged nearly 3% after announcing a $4.9 billion all-cash acquisition of weight-loss drugmaker Metsera, which soared 60%.

Compass dropped 9% despite agreeing to acquire real estate rival Anywhere in a $1.6 billion all-stock deal. Anywhere shares jumped over 50% on the news.

Other movers included Sarepta Therapeutics, up 10% on an analyst upgrade, and Crown Castle, which gained 1.1% after a bullish call from Wolfe Research.

Kenvue tumbled 5% after reports linking Tylenol use in pregnancy to autism.

Fox Corp climbed nearly 4% following Trump’s mention of Murdoch involvement in TikTok’s U.S. future.

What’s the Market Outlook Ahead of Inflation Data?

With equities near highs and the Fed signaling restraint, the next major catalyst will be Friday’s personal consumption expenditures (PCE) price index—the Fed’s preferred inflation gauge. A soft print could validate rate cut expectations and support equities, but any upside surprise would challenge the easing narrative.

Traders should prepare for potential volatility this week as economic data, political developments, and Fed commentary converge. Market support may hinge more on solid macro readings than additional monetary easing.

More Information in our Economic Calendar.