Shutdown, Tepid Economy, Stocks Rise, Little Ones

October 5, 2025

THE SHUTDOWN: The current budget process was created in 1976. It has produced 11 shutdowns. A shutdown occurs when there is a funding gap because Congress misses the deadline to pass a budget or a temporary measure (continuing resolution), leaving no legal authority to spend. The federal budget has two parts: mandatory spending (such as Social Security, Medicare, and Medicaid, which are funded automatically and do not depend on the annual budget process) and discretionary spending, which covers defense, agriculture, education, and transportation. So, how do shutdowns affect stocks? The average return of the S&P 500 for all prior shutdowns, the one month after a shutdown is 3.0%. For three months after the start of a shutdown, the average return has been 6.0%. The average return for six months has been 11.9%.

INVESTORS KEEP BUYING: The S&P 500 closed Friday at another record high despite the prospects and then the reality of a U.S. government shutdown. The leading sector in the S&P 500 was healthcare, which gained 6.9% for the week. When the Federal Reserve next meets later this month, it may have to make decisions without the typical government data, which will not be produced if the shutdown continues. In addition to stocks riding higher, gold, silver, and platinum prices have been consistently rising as well.

LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.

FORWARD P/E: Currently, if you use forward earnings (meaning projected earnings for companies over the next twelve months) as the measure of S&P 500 companies' price to earnings ratio, the average forward P/E ratio is 22.8. The ten-year average is 17.6.

SEPTEMBER JOBS REPORT: We did not get a September jobs report because, you know, the government shutdown. So how did September go? Another source of data is ADP, which produces a monthly report of private sector jobs. In September, the U.S. economy shed 32,000 jobs. In August, ADP reported a loss of 3,000 jobs. ADP does not report on government jobs. One of the reasons the Fed recently lowered its key interest rate was the weakening labor market. This data will move the needle in the direction of a second rate cut in the near future.

FUEL TROUBLE ON THE WEST COAST: The El Segundo Chevron refinery in Los Angeles County processes 20% of the state's fuel for cars, and 40% of the state's jet fuel. It had a major fire on Friday. AAA is already predicting a spike in gas prices. Due to the planned closure of three other California refineries in the next six months, it is unclear where California will be getting its gas and jet fuel. Will there be enough to refuel jets flying via California? The state may need to begin importing oil from South Korea or even China to prevent significant scarcity in the state.

U.S. SERVICES SECTOR RUNNING IN PLACE: According to the Institute for Supply Management (ISM), which maintains an index on the manufacturing and services sectors of the economy, the services sector did not increase or decrease last month. The index scored 50, which means neither contraction nor expansion. The services sector of the U.S. economy has been expanding in ten of the last twelve months. However, in six out of the last seven months, employment in the services sector has contracted.

U.S. MANUFACTURING IMPROVES, BUT STILL IN CONTRACTION MODE: ISM manufacturing index scored 49.1 in August, indicating contraction, but an improvement from the prior month.

FUN WITH THE LITTLE ONES: We had the privilege of having two of my granddaughters for all of last weekend (it was hard to get MacGray Matter done!). We had a wonderful (and yes, tiring) time!

Have a great week!

Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.

Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

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dmacgray@stonecropadvisors.com

"I feel very fortunate. Someone was looking out over me. I feel it. Someone up there likes me, and I was able to make it out alright." Lt. Col. George E. Hardy, one of the last surviving members of the Tuskegee Airmen who died September 25, 2025, at the age of 100.

"Our people must learn to devote themselves to doing what is good in order to provide for urgent needs and not live unproductive lives." Titus 3:14

SOURCES:

THE SHUTDOWN: https://www.ftportfolios.com/Commentary/EconomicResearch/2025/10/2/government-shutdowns-more-drama-than-damage

SEPTEMBER JOBS REPORT: https://www.wsj.com/economy/jobs/u-s-lost-32-000-jobs-in-september-says-payroll-processor-06528340?mod=economy_feat5_jobs_pos1

FUEL TROUBLE ON THE WEST COAST: https://www.cbsnews.com/losangeles/news/how-the-chevron-refinery-fire-in-el-segundo-could-affect-california-gas-prices/

GEORGE E. HARDY QUOTE: https://www.pbs.org/articles/meet-tuskegee-airmen-lt-colonel-george-hardy

U.S. SERVICES SECTOR RUNNING IN PLACE: https://www.ftportfolios.com/Commentary/EconomicResearch/2025/10/3/the-ism-non-manufacturing-index-declined-to-50.0-in-september

U.S. MANUFACTURING IMPROVES, BUT STILL IN CONTRACTION MODE: https://www.ftportfolios.com/Commentary/EconomicResearch/2025/10/1/the-ism-manufacturing-index-rose-to-49.1-in-september

FORWARD P/E: https://myweeklystock.substack.com/p/weekly-market-recap-sep-29-oct-3?utm_source=post-email-title&publication_id=697043&post_id=175108360&utm_campaign=email-post-title&isFreemail=false&r=s86er&triedRedirect=true&utm_medium=email

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SDG

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it is a common index to track the performance of U.S. equity markets, especially the large-cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.