Both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) finished in negative territory ahead of the Labor Day weekend.
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The odds of a government shutdown in 2025 jumped to 50% on prediction platform Polymarket, rising 16% during the past 24 hours. Congress is set to return from recess next week with significant disagreements on the table between Democrats and Republicans. A key demand from the Democrats is to reverse Medicaid cuts enacted by The One Big Beautiful Bill. Lawmakers will have 20 days to secure a deal before funding runs out on September 30.
Adding to market fears is that July’s core personal consumption expenditures (PCE) index increased by 2.9% year-over-year, the highest pace in five months. While the reading, which excludes volatile food and energy items, was in line with estimates, it remains well above the Fed’s inflation goal of 2%. PCE measures the price that consumers pay for a basket of goods and services, with regular PCE rising by 2.6%.
August’s Index of Consumer Sentiment elevated fears as well, falling from 61.7 in July to 58.2 and missing the estimate of 58.6. “This month’s decrease was visible across groups by age, income, and stock wealth,” said Surveys of Consumers Director Joanne Hsu. “Moreover, perceptions of many aspects of the economy slipped.” Furthermore, survey respondents now expect year-ahead inflation of 4.8% compared to 4.5% in July. Long-run inflation expectations climbed by 0.1% to 3.5%.
Meanwhile, the U.S. trade deficit widened in July, posting a 22.1% monthly rise to $103.6 billion. Imports increased by $18.6 billion while exports fell by $0.1 billion, likely signaling that businesses sought to front-run new tariff rates enacted earlier this month. That could be concerning for gross domestic product (GDP) because imports are subtracted from the calculation.
It wasn’t all bad news, however. Consumer spending increased by 0.5% in July, marking the highest rise in four months. Goods spending ramped up by $48.7 billion while services spending jumped by $60.2 billion. Consumer spending accounts for about 70% of GDP, with the Commerce Department forecasting 3.3% growth in the second quarter, up from its initial estimate of 3.0%.
The S&P 500 (SPX) closed with a 0.64% loss while the Nasdaq 100 (NDX) fell by 1.22%.