SPY, QQQ Tumble as Powell Issues Stark Valuation Warning - Government Shutdown Looms

Markets reel as Federal Reserve Chair Jerome Powell drops valuation reality check hammer.

The Powell Effect Strikes Again

SPY and QQQ take significant hits following Powell's blunt assessment of current market valuations. The timing couldn't be worse with another government shutdown deadline rapidly approaching.

Shutdown Countdown Intensifies Pressure

Political brinkmanship adds fuel to the fire as lawmakers play chicken with fiscal stability. Market participants brace for potential volatility spikes amid the dual threat of central bank caution and political dysfunction.

Valuation Reality Check

Powell's warning echoes through trading floors as investors reassess risk exposure. The combination of stretched valuations and political uncertainty creates perfect storm conditions for traditional markets.

Another day, another opportunity for Wall Street to prove it can panic about both monetary policy and political theater simultaneously—because why choose one crisis when you can have both?

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Powell said that he believes equity prices are “fairly highly valued” and elevated compared to historical levels. In addition, he cautioned that there is “no risk-free path” for interest rates, highlighting the challenge the Fed faces in implementing its dual mandate of keeping inflation around 2% and maximizing employment. Keeping rates steady could further weaken the labor market, while lowering them too quickly could boost inflation.

Meanwhile, the odds of a government shutdown in 2025 jumped to 71%, rising by 14% over the past week. President TRUMP had previously scheduled a meeting with Congressional Democrats to negotiate a funding bill, but has since canceled the meeting. The two parties must strike a deal by October 1 or risk a government shutdown, which hasn’t occurred since 2019.

In a Truth Social post, Trump accused Democratic members of seeking “$1 Trillion Dollars in new spending to continue free healthcare for Illegal Aliens,” taxpayer money for funding transgender surgery for minors, open borders, and allowing men to compete in women’s sports.

“To the Leaders of the Democrat Party, the ball is in your court,” Trump said. “I look forward to meeting with you when you become realistic about the things that our Country stands for.”

Another factor driving the market lower is September’s U.S. S&P Global Flash Composite Purchasing Managers’ Index (PMI), which came in at 53.6. A reading above 50 indicates economic expansion, while a reading below 50 indicates contraction. While business activity is still expanding, September’s reading notched a 3-month low and missed the estimate of 54.0. At the same time, business sentiment edged higher on hopes of lower interest rates.

Finally, the Organization for Economic Cooperation and Development (OECD) warned in its quarterly report that tariffs boost the risks of rising inflation and slowing gross domestic product (GDP) growth. The OECD expects 3.0% inflation in 2026, up from 2.7% in 2025, and 1.5% GDP growth in 2026, down from 1.8% in 2025 and 2.4% in 2024.

The S&P 500 (SPX) closed with a 0.55% loss, while the Nasdaq 100 (NDX) fell by 0.73%.