Stock Market Today: Dow, S&P 500 and Nasdaq head for fresh records; gold and oil are higher

U.S. major stock indexes are on track for record highs and a sixth consecutive day of gains, largely shrugging off a government shutdown and a contracting September ISM services employment component. This rally coincides with BofA Global Research noting significant improvement in small-cap earnings per share, driving recent Russell 2000 gains. However, Goldman Sachs CEO David Solomon, while untroubled by the current bull market, anticipates a potential equity market drawdown within the next 12-24 months, offering a cautious long-term perspective amid present strength.

Analysis

U.S. major equity indexes are exhibiting strong upward momentum, with the S&P 500, Dow, and Nasdaq on track for a sixth consecutive day of gains and new record highs. This market strength persists despite investors shrugging off both a federal government shutdown and weakening economic indicators. Specifically, the September ISM services index fell to a neutral 50.0, below consensus, while its employment subcomponent contracted for a fourth straight month at 47.2, signaling a potential slowdown. The market's focus appears to be on corporate fundamentals, particularly a notable improvement in the small-cap segment. BofA Global Research highlights that the Russell 2000's recent 3% price return was driven entirely by positive revisions to earnings per share, the most significant since mid-2022, while its forward P/E multiple held steady at 16.2x. This suggests a broadening of the earnings recovery. Tempering this near-term optimism, Goldman Sachs CEO David Solomon noted that while he is not immediately concerned, he anticipates an equity market drawdown within the next 12 to 24 months, drawing parallels to past technology-driven cycles.

Key Decisions for Investors

• Given the disconnect between strong market performance and weakening ISM services data, investors should closely monitor high-frequency economic indicators for signs of further deterioration that could challenge the current sentiment-driven rally.
• The earnings-led recovery in small-caps, evidenced by the Russell 2000's positive EPS revisions, suggests a potential rotation; consider increasing exposure to this segment (e.g., via IWM) to capture the broadening profit cycle.
• In line with the cautionary 12-24 month outlook from Goldman Sachs' CEO, it is prudent to review portfolio risk and consider strategies for a potential market correction, even while participating in current upside momentum.