The crisis of missing economic data is shaking the foundation of the Federal Reserve's policy decisions, making the high valuations of U.S. stocks appear increasingly fragile. Investors are accelerating profit-taking.
While the U.S. government shutdown has ended, its aftermath is just beginning for investors. Concerns are mounting that gaps in economic data could delay or even derail Fed rate cuts at a delicate moment for the stock market.
These fears triggered the worst selloff in a month for the interest rate-sensitive Nasdaq Composite Index (IXIC) on Thursday (November 13), just a week after its steepest weekly decline since April. The Nasdaq, which soared this year amid the AI stock boom, has fallen about 5% from its October peak.
The core issue lies in the data vacuum—particularly in employment and inflation metrics. Some of this data was never collected during the 43-day shutdown and may never be released.
White House economic advisor Kevin Hassett noted that October inflation data may not be published, while the jobs report will exclude the unemployment rate since the household survey used to calculate it wasn’t conducted.
**"Driving in the Fog"** This data void poses serious risks for markets. Fed Chair Jerome Powell likened the situation to "driving in the fog" and hinted policymakers might "slow down"—meaning hold rates steady rather than cut.
Market expectations for a 25-basis-point December rate cut, seen as near-certain a month ago, have now dropped to about 50% according to CME's FedWatch tool, unsettling an already jittery market.
"The market has clearly staged a massive rebound from April lows with almost no interruptions," said Matt Sherwood, head of investment strategy at Perpetual in Sydney. "This rally requires Fed rate cuts and persistently loose financial conditions to justify what I consider extreme valuations."
As of Wednesday (November 12), the S&P 500's forward P/E ratio stood at 22.8x based on LSEG Datastream estimates—well above its 10-year average of 18.8x. With year-to-date gains exceeding 20% in hot sectors like tech, investors are eager to lock in profits.
Market sentiment has turned volatile. Recent favorites like Palantir (PLTR) and Oracle (ORCL) have slumped about 15% this month, while chipmaker NVIDIA (NVDA) dropped nearly 8%.
"We're at that time of year where any downside could spread further in sectors that performed exceptionally well, as investors rush to take profits," noted Chuck Carlson, CEO of Horizon Investment Services in Hammond, Indiana.
**Blind Flight into 2026** During the shutdown, private surveys—usually overlooked—gained prominence, painting a mixed economic picture: spending held up, but layoffs spiked in some metrics.
Despite uncertainty, investors still expect at least three Fed rate cuts by end-2026, bringing rates down to 3%. Analysts warn this outlook may face pressure as more policymakers—including San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari this week—express caution about easing.
"The Fed is flying blind just like we are," said Bob Savage, head of market macro strategy at BNY in New York. "The more interesting debate, with no clear answers, is what happens in 2026. The 'dot plot' projections might draw more attention than actual rate decisions—their growth and employment forecasts really matter."
Some investors view recent declines as a minor correction in a broader AI-driven rally with room to run. But turbulence lies ahead. The dollar’s slide alongside stocks suggests global capital may be fleeing U.S. markets. Meanwhile, Bitcoin—a leading indicator of market weakness earlier this year—struggles below $100,000.
"Between now and Thanksgiving, markets could remain choppy," said Michael Schulman, CIO at Running Point Capital Advisors. "Many are waiting for clarity."
*Risk Warning: Markets involve risks; invest with caution. This article does not constitute personal investment advice and does not account for individual financial circumstances. Invest at your own discretion.*