To The Moon

$S&P 500(.SPX)$

Trump: “Shutdown Cost $1.5 Trillion — Government Should Never Be Shut Down Again.”

Is the pullback over or is this only a temporary rebound? Can the market’s rally truly sustain?

Introduction: A Crisis Avoided — But at What Cost?

The U.S. House of Representatives has voted to pass the bill to reopen the government, effectively ending one of the most contentious shutdown standoffs in recent history. Markets immediately reacted to the headline: equity futures ticked higher, risk assets stabilized, and Treasury yields retreated from their recent spike.

But the real question on investors’ minds is far more complicated:

Was this a genuine relief rally? Or just a classic sell-the-news trap?

Compounding the tension, former President Donald Trump weighed in, estimating the shutdown cost $1.5 trillion to the U.S. economy and insisting the government should “never be shut down again.” His comment reflects what many analysts fear — that political brinkmanship now has real, persistent economic consequences, not just temporary disruptions.

Investors now must evaluate three urgent factors:

1. Is the recent pullback truly over?

2. Will the relief rally continue or fade?

3. Can the broader market sustain momentum into year-end?

The answers lie at the intersection of macro momentum, inflation trajectory, liquidity dynamics, and increasingly unpredictable U.S. political risk.

A Relief Rally or a Political Mirage?

Short-Term Relief: Markets Love an End to Uncertainty

In the immediate aftermath of the bill’s passage, markets typically behave in a predictable sequence:

1. Risk sentiment improves

2. Equities rebound from oversold conditions

3. Safe-haven demand fades

4. Volatility cools down

We saw this exact sequence play out:

• Equity indexes bounced after a multi-day selloff

• Treasury yields softened

• Volatility index (VIX) pulled back

• Dollar stabilized

This is the textbook definition of a relief rally — a rebound driven not by fundamentals, but by the removal of an extreme tail risk.

But relief rallies are structurally fragile.

They fade quickly when macro pressures return, and right now, those pressures remain substantial.

Short-Term Rebound vs. Medium-Term Reality

Was the Pullback Really Over?

To answer this, we must break the recent pullback into components:

• Macro volatility driven by shutdown fears

• Rising Treasury yields

• Weaker earnings from select sectors

• Concerns of delayed fiscal spending

• Uncertainty over Fed policy path

The shutdown risk is now gone, but the other four remain firmly in place.

1. Treasury Yields: The Silent Threat

Yields have climbed for weeks on the back of:

• Sticky inflation in several service segments

• Strong labor data

• Fed officials expressing caution on rate cuts

• Heavy Treasury issuance

Even with the shutdown resolved, yields remain elevated. High yields pressure:

• Equity valuations

• High-growth tech

• Consumer spending

• Corporate borrowing costs

Until yields meaningfully retreat, the “pullback is over” narrative is premature.

2. Earnings Quality Still Divided

While Big Tech continues to show strength, many cyclical sectors —

• Retail

• Industrials

• Transportation

• Financials

— have issued mixed or cautious guidance.

Relief rallies collapse quickly when earnings do not support valuations.

3. Fiscal Uncertainty Is Not Gone

The shutdown bill may reopen government operations, but the long-term fiscal trajectory remains concerning:

• Rising national debt

• Expanding deficit

• Ongoing political battles behind the scenes

• Potential for future gridlock around spending packages

Markets are forward-looking. They see this as a temporary cease-fire — not a structural fix.

4. Fed Trajectory: No Clear Pivot Yet

The next question: Does the reopening reduce economic drag, making inflation even harder to tame?

For the Fed, a reopened government:

• Means data releases resume

• Means GDP may stabilize

• Means consumer demand may normalize

A more stable economy is good — but not if inflation reaccelerates.

This keeps rate cut expectations uncertain, and uncertain Fed expectations suppress long-term market momentum.

Relief Rally vs. Sell-the-News Trap: The Market’s Dilemma

Why This Could Be a Sell-the-News Trap

Sell-the-news events typically occur when:

1. A widely expected positive event is confirmed

2. Positioning leans overly bullish into the event

3. Macro headwinds remain unaddressed

4. Liquidity is too tight to sustain momentum

All four factors exist right now.

Markets Priced in a Reopening

Investors assumed a last-minute compromise. When the news hit, it triggered a small relief bounce — but not a full risk-on breakout.

This lack of follow-through is a warning sign.

Liquidity Conditions Remain Tight

The biggest challenge for equities right now is liquidity:

• QT continues

• Reverse repo balances have shrunk

• Treasury issuance remains heavy

• Cash is flowing into money markets

When liquidity is draining, relief rallies rarely last.

Investor Sentiment Is Still fragile

Sentiment indicators show:

• Retail: cautious

• Institutions: defensive

• Hedge funds: neutral positioning

• VIX: not fully reset

A hesitant market rarely sustains rallies.

Trump’s $1.5 Trillion Warning: Market Impact

Former President Trump’s comment that the shutdown cost 1.5 trillion dollars is more than political theater. It reflects a broader economic truth:

Shutdowns erode confidence, delay investment, and weaken fiscal coordination.

Markets hate uncertainty, and shutdowns inject uncertainty directly into:

• Government spending

• Federal data releases

• Consumer confidence

• Defense contracts

• Infrastructure projects

• Regulatory approval timelines

The message to investors is clear:

The U.S. political machine remains a major source of market volatility. Even with the current shutdown averted, the underlying political dysfunction persists.

This is why the rally may struggle to sustain.

Is the Market Rally Sustainable?

Bull Case: Yes, the Rally Can Continue

There are several legitimate pillars supporting a continued rally:

1. The U.S. Economy Remains Surprisingly Resilient

Despite tightening, the U.S. consumer continues to hold up.

• Job market remains strong

• Corporate balance sheets are stable

• Household net worth at record levels

• Housing demand resilient even with high rates

2. AI and Tech Momentum Still Powerful

Mega-cap tech continues to drive earnings:

• Cloud spending

• AI capex

• Data center expansion

• Software margins

These sectors alone can stabilize major indices.

3. Seasonal Strength Approaching

Historically, November–January is one of the strongest periods for U.S. equities.

If sentiment stabilizes, flows could return.

Bear Case: No, the Rally Will Likely Fade

Several downside pressures remain heavy:

1. High Yields Threaten Equity Valuations

Equity multiples cannot sustainably expand while yields remain elevated.

2. Fed Uncertainty Dominates

No clear guidance = multiple compression risk.

3. Geopolitical Risks Persist

• Middle East tensions

• China-U.S. tech restrictions

• Election-year volatility

4. Fiscal Risk Not Gone

The shutdown bill is temporary political relief — not long-term resolution.

5. Narrow Market Breadth

If mega-caps stumble, the entire market is vulnerable.

So, What’s Next? The Base Case for Markets

1. The Pullback Is Probably Not Fully Over

The relief rally is real — but temporary. There is not enough liquidity, breadth, or macro clarity to confirm a full trend reversal.

Expect more two-way volatility.

2. The Rally Can Continue Briefly — but Faces Resistance

Markets may grind higher on:

• Short covering

• Seasonal flows

• Reduced shutdown fear

• Dip-buying enthusiasm

But a sustained rally requires lower yields or clearer Fed guidance — neither of which exists yet.

3. Medium-Term: Sideways, Not Breakout

The most likely path:

• Choppy sideways range

• Frequent reversals

• A lack of conviction

Investors should expect a market that rallies on good news, but struggles to extend gains.

Investor Strategy: How to Navigate This Environment

1. Avoid Chasing Relief Rallies

When the rally is based on reduced fear — not improved fundamentals — it tends to fade quickly.

2. Maintain Diversification With Quality Tilt

High-quality companies with strong balance sheets are best positioned.

3. Favor a Barbell Strategy

• Defensives: healthcare, utilities, staples

• Growth/AI: semiconductors, software, cloud

4. Keep Tight Risk Controls

Volatility will spike again. Downside hedges make sense.

5. Watch Yields Closely

If the 10-year yield moves higher again, risk assets will struggle.

Conclusion: Relief Today, Reality Tomorrow

The House may have passed the bill to reopen the government — and the market may have bounced — but the structural issues remain unchanged:

• Political instability

• High yields

• Uncertain Fed policy

• Mixed earnings

• Tightening liquidity

The relief rally is real. But it is not yet a sustainable bull run.

Is the pullback over? → No — macro forces suggest more volatility ahead.

Can the market rally continue? → Possibly, but fragile.

Is this a sell-the-news trap? → Partially. Investors should treat this rally cautiously.

The U.S. avoided a shutdown disaster, but breaking through the current macro ceiling requires more than just political compromise. It requires cooling inflation, lower yields, and a clearer Fed path — none of which are firmly in place.

For now, the market’s message is simple:

Enjoy the relief rally — but don’t trust it blindly.