Key Points
- The US government shut down most operations on Wednesday as Congress failed to reach a deal to raise the debt ceiling.
- Government shutdowns do not usually have a lasting effect on financial markets, but the fiercely divided House threatens a bitter standoff.
- Declining consumer confidence and further signs of a weakening labor market will likely contribute to a slowing economy.
The Conference Board’s measure of consumer confidence declined to 94.2, remaining at 2020 pandemic levels since a steep plunge in April 2025.
Labor Market
Signs of a weakening jobs market are growing, with unemployment rising above job openings in August, for the first time since April 2021.
Temporary employment declined to 2.5 million. Low temporary hires indicate declining employer confidence in the economic outlook.
Declining average weekly hours worked warn of increased layoffs in the months ahead.
A low quit rate of 1.9% reflects declining employee confidence in the job market.
Stocks
The S&P 500 continues to test resistance at 6700 despite concerns over the government shutdown. A breakout would offer a medium-term target of 6900.
Financial Markets
High-yield spreads remain at a low 7.5%, indicating credit is readily available in financial markets.
Bitcoin is more tentative, having twice tested support at 110K. A breach of the support level would warn of a sharp contraction in financial market liquidity.
Treasury Markets
10-year Treasury yields will likely retest resistance at 4.2% in the next few days, driven by uncertainty from the government shutdown. A breakout above 4.2% would offer a medium-term target of 4.4%.
Dollar & Gold
The US Dollar Index retreated below support at 98, but the outlook for lower interest rates remains uncertain.
Gold climbed to $3,868 per ounce, demand fueled by the increased uncertainty. A breakout above $3,900 would signal a test of our year-end target of $4,000.
Silver ripped through our target of $45 per ounce, with rising Trend Index troughs signaling strong buying pressure. A breakout above resistance at $47 would offer a target of $50.
Platinum has re-joined the party, with a breakout above $1,500 offering a target of $1,700.
Conclusion
Uncertainty over the US government shutdown has boosted demand for precious metals. Resolving partisan differences over government funding and extending healthcare benefits will likely prove difficult.
Consumer confidence is low, and a weakening labor market warns of a slowing economy. An extended shutdown would further undermine spending, pushing the economy closer to a recession.
Strong financial market liquidity supports high stock prices, but a Bitcoin retreat below 110K would warn of a contraction that would hurt equity markets.
Acknowledgments
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- CoinDesk: Bitcoin
- Federal Reserve of St Louis: FRED Data
- The Conference Board: Consumer Confidence
- Reuters: US government shutdown begins as partisan division rules Washington
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
