Shutdown Breakthrough Ignites Year-End Rally Hopes—Wall Street Bets the Worst Is Over

The longest government shutdown in U.S. history appears to be nearing its end—and Wall Street is cheering. Futures surged overnight, with the S&P 500 pointing higher by more than 1%, the Nasdaq pacing early gains, and small caps joining in the rally as optimism builds that Congress will finalize a deal to reopen the government this week. The relief is as much psychological as it is fundamental: after 40 days of dysfunction and deepening economic strain, the simple prospect of a return to normal operations is enough to spark a bid in equities that had been searching for footing after a rocky few weeks.

But this isn’t a “mission accomplished” moment just yet. There are procedural steps still to clear in both chambers of Congress, and some potential bottlenecks that could extend the timeline by a few days. Still, with markets already pricing in a resolution and traders leaning into a seasonally strong period for equities, the path of least resistance—at least for now—appears to be higher. As one desk put it early Monday: “Shorts are covering, dip buyers are back, and November has a history of rewarding optimism.”

That history is hard to ignore. Data from the past 70 years show that when the S&P 500 enters November up at least 15% year-to-date, it has gone on to finish higher 21 out of 22 times. That track record, combined with fading political uncertainty, sets the stage for a potential year-end melt-up—especially given how many investors had been sitting on cash through the fall volatility. Last week’s roughly 4% correction may prove to have been the reset that tactical bulls were waiting for.

Still, the euphoria is tempered by the recognition that macro risks haven’t evaporated. The shutdown was only one of several forces weighing on sentiment, and arguably the least consequential in market terms. AI-related profit-taking and the Federal Reserve’s recent hawkish tone remain active headwinds. The resolution in Washington may spark a near-term relief rally, but traders know that liquidity, inflation, and interest-rate expectations—not the budget process—will ultimately dictate the market’s trajectory into year-end.

The reopening of the government also means a wave of long-delayed economic data is about to hit. The September jobs report should surface quickly, as most of its data collection occurred before the shutdown began. But beyond that, the release schedule is uncertain. CPI, PPI, and retail sales data could all drop in rapid succession once the data backlog clears, creating a potential flurry of market-moving headlines in the weeks leading up to the Fed’s December policy meeting. According to Fed fund futures , there’s currently a 65% chance of a 25-basis-point rate cut, though traders caution that the incoming data will heavily influence that probability.

For now, markets are focused less on the policy details of the Senate compromise and more on what the reopening represents: clarity and stability. After a month of frozen data releases, furloughed workers, and rising airline disruptions, investors are relieved to see fiscal function return. The Treasury can resume normal operations, agencies can clear backlogs, and consumer-facing confidence should stabilize. Morgan Stanley’s desk summed it up Monday morning: “Ending the shutdown is the easiest catalyst for a relief rally—you remove uncertainty, you unlock liquidity, and you revive data flow.”

There will still be some friction in the coming days. The deal struck over the weekend faces potential procedural delays in both chambers, with progressive Democrats frustrated by the absence of firm commitments on healthcare subsidies and a few Senate Republicans pushing policy amendments that could slow final passage. But even if votes stretch into midweek, markets appear confident that the outcome is no longer in doubt. The focus, instead, is shifting to what comes next: the shape of the economic rebound once government spending restarts and the deluge of deferred data begins to inform the Fed’s next move.

From a market-technical standpoint, the setup is favorable. The S&P remains above its 50-day moving average, and breadth indicators have begun to turn upward after weeks of compression. The fact that small caps are joining the rally lends weight to the idea that this could be more than just a short-covering pop. If large-cap tech continues to stabilize and value sectors maintain traction, the ingredients for a sustained year-end rally are in place.

Still, as traders like to remind each other, the market rarely moves in a straight line—especially after policy headlines. There could be renewed volatility as the procedural steps unfold, and the initial relief rally may give way to profit-taking once the news is fully priced in. Yet with the calendar now tilting in favor of seasonal strength, and with shutdown anxiety finally fading, the market has regained something it hasn’t had in weeks: momentum.

For now, investors are taking that as a green light to look past the gridlock and focus once again on fundamentals, data, and the upcoming Fed meeting. The government may have been closed, but the market looks ready to reopen its playbook for the year-end rally.