Tech Rally Continues as Markets Shrug Off Govt Shutdown

Good Morning Investors,

Markets begin the second week of government shutdown with futures advancing 0.2-0.6% as OpenAI's landmark AMD partnership and Fifth Third's $10.9 billion Comerica acquisition overshadow political dysfunction. The S&P 500 and Nasdaq concluded their fourth weekly advance in five weeks with 1.1% and 1.3% gains respectively, demonstrating investor comfort operating without traditional government data as earnings and deal momentum drive positioning.

Pre-market strength centers on two transformative developments: AMD shares surging over 20% on OpenAI's potential 10% stake through warrant structure tied to 6 gigawatt GPU deployment, and regional bank merger creating the ninth-largest U.S. bank by assets. These deals validate the M&A acceleration and AI infrastructure buildout themes I've consistently emphasized as key drivers toward my 6,800 year-end target.

Small and mid-cap stocks are attempting breakouts toward all-time highs this morning after Friday's strong start, with the regional banking ETF jumping 1% on expectations this merger signals the beginning of broader consolidation in the sector. I continue expecting outsized catch-up performance from small and mid-caps before Magnificent Seven leadership reasserts itself toward year-end.

The government shutdown entering its sixth day with no resolution in sight has created a data blackout extending beyond Friday's missed jobs report to this week's expected releases including jobless claims, wholesale trade, and import/export figures. Yet markets continue establishing record highs, with the Dow breaching 47,000 Friday and all three major indices closing at fresh peaks.

Historical precedent supports this indifference. Every shutdown since 1995 has seen positive S&P 500 performance, with past 20 shutdowns averaging just eight days duration according to Bank of America data. Investors have generally been able to look past budget-related disruptions, and have been prioritizing corporate earnings, broader economic trends, and other key macroeconomic factors. With Earnings strength in Q2, you would expect another strong earnings season in the coming months.

The Congressional Budget Office estimates 750,000 federal workers furloughed daily, though Trump's mass layoff threats rather than traditional furloughs add uncertainty. However, markets appear viewing the shutdown as continuation of 2025's policy volatility that ultimately resolved positively, not as fundamental threat.

OpenAI's agreement with AMD for 6 gigawatt GPU deployment over multiple years, beginning with 1 gigawatt rollout in second half 2026, represents one of the largest AI infrastructure commitments announced. The warrant structure granting OpenAI potential 10% AMD stake through 160 million shares vesting tied to deployment milestones and share price targets aligns incentives while providing AMD crucial validation of its Instinct roadmap.

This follows OpenAI's $100 billion Nvidia equity-and-supply agreement announced two weeks prior, together accounting for 16 gigawatts of OpenAI's broader 23 gigawatt infrastructure roadmap. At estimated $50 billion construction costs per gigawatt, OpenAI has committed roughly $1 trillion in new buildout spending within two weeks, unprecedented in scale.

AMD CEO Lisa Su characterizes this as "true win-win enabling the world's most ambitious AI buildout and advancing the entire AI ecosystem." For AMD, years trailing Nvidia in AI accelerators now conclude with flagship customer positioning at the generative AI forefront. The 20%+ pre-market surge reflects market recognition of this validation.

However, the increasingly circular nature of AI's corporate economy warrants scrutiny. Nvidia supplies capital to buy its chips, Oracle builds sites, AMD and Broadcom serve as suppliers, OpenAI anchors demand. This tightly wound system faces real strain risk if any link weakens, a concern I've highlighted regarding sustainability of current AI infrastructure valuations.

Nvidia's 1% pre-market decline reflects competitive pressure recognition, though the company's $100 billion OpenAI stake and 10 gigawatt commitment provides substantial positioning regardless of AMD's inroads.

I had started to get really bullish on AMD in mid May and affirmed that bullish stance in late June when i initiated a buy rating on the stock around $134.

Fifth Third Bancorp's $10.9 billion all-stock acquisition of Comerica creates the ninth-largest U.S. bank with $288 billion assets, expected to close first quarter 2026. The transaction marks the beginning of anticipated regional bank consolidation as the Trump administration and Republican-controlled Congress ease merger scrutiny and regulatory burdens.

Fifth Third CEO Tim Spence frames this as "pivotal moment as we accelerate our strategy to build density in high-growth markets and deepen our commercial capabilities," while Comerica CEO Curt Farmer emphasizes enhanced capabilities across more markets through combination.

Comerica's 11.5% pre-market surge versus Fifth Third's 3% decline reflects typical acquirer/target dynamics, though the regional banking ETF's 1% jump suggests market expectations for additional consolidation announcements. This validates my bank earnings optimism and expectation for financial sector strength supporting year-end market advance.

The regulatory environment shift enabling this transaction represents meaningful catalyst for mid-cap financials, an area I've identified as offering catch-up potential alongside broader small and mid-cap strength.

Small and mid-cap stocks are positioning for moves toward all-time highs this morning after Friday's strong open, though they faded slightly into the close. The Russell 2000's technical setup combined with regional bank deal momentum and reduced regulatory friction creates conditions for the outsized catch-up performance I've anticipated.

My expectation remains that small and mid-caps outperform through October and November before Magnificent Seven leadership reasserts into year-end. This rotation broadens market participation while creating healthier foundation for continued advance, addressing concentration concerns that have persisted throughout 2025's rally.

Bitcoin concluded the week with highest weekly close ever, rallying to $125,725 before consolidating near $120,000-$121,000 support. Technical indicators show bullish trend remains intact with higher highs and strong momentum, though RSI at 71 and stochastic reading of 89 suggest overbought conditions increasing likelihood of brief retracement.

Short-term charts reveal mixed signals with local double top around $125,725 and falling volume indicating profit-taking, yet moving averages across all key periods continue flashing bullish signals. If Bitcoin holds above $121,000, analysts expect pullback to stabilize as healthy consolidation phase potentially paving way for breakout above $126,000.

I maintain conviction in Bitcoin eclipsing $150,000 by year end, supported by historically strong Q4 seasonality for crypto markets. Current consolidation represents natural digestion after substantial gains rather than trend reversal, with aggressive long positioning in derivatives markets suggesting conviction building for continued advance.

With government shutdown delaying most economic releases, this week's calendar centers on Wednesday's FOMC meeting minutes from September's initial rate cut and Friday's University of Michigan sentiment preliminary October reading. The minutes will provide insights into newly appointed Fed Governor Stephen Miran's dovish positioning and broader committee debate around cutting cycle pace.

Several Fed officials speak this week including Miran Wednesday and Chair Powell Thursday, offering policy guidance despite data blackout. Traders price 97.8% probability of quarter-point October cut, essentially cementing accommodation expectations.

Earnings remain light with Constellation Brands Monday, PepsiCo and Delta Thursday providing consumer spending and travel demand insights. Major bank earnings begin next week, the critical catalyst I've emphasized for validating current valuations and supporting year-end strength.

Gold's seventh consecutive weekly gain brings the precious metal within striking distance of $4,000, up 26% since Trump's April "Liberation Day" announcements. Silver and platinum have outperformed even gold with 49% and 65% annual gains respectively, driven by safe-haven demand, dollar weakness, and Fed independence concerns.

Energy transition metals including copper, lithium, and cobalt show volatility but long-term strength as Trump administration formalizes lithium market presence through 5% stakes in Lithium Americas and GM joint venture. International Energy Agency projects lithium demand growing fivefold by 2040 with copper and cobalt seeing 30% and 50% increases respectively.

This positions transition metals for sustained strength despite near-term policy-driven volatility, another secular theme supporting continued market advance.

Markets are clearly advancing toward my 6,800 S&P 500 year-end target as risk appetite increases across Wall Street. I don't expect straight-line progress, as periodic volatility remains probable. However, the combination of AI infrastructure momentum, M&A acceleration, Fed accommodation, and broadening market participation creates multiple supportive catalysts.

Fundstrat's Tom Lee raised his year-end target to 7,000, writing "we would urge looking through the messiness of the shutdown, and even the lack of data. If stocks are particularly weak, I would use this to 'buy the dip.'" While my 6,800 target remains more conservative, his constructive positioning reflects growing Wall Street conviction.

Small and mid-cap catch-up potential, regional bank consolidation, and Bitcoin's advance toward $150,000 all support the broadening strength thesis. Quality companies demonstrating operational excellence and emerging technologies driving productivity gains warrant current positioning despite elevated valuations.

Markets begin the second shutdown week with record highs and transformative deals overwhelming political dysfunction. OpenAI's trillion-dollar infrastructure buildout across Nvidia and AMD partnerships validates AI spending sustainability, while Fifth Third's Comerica acquisition signals regional bank consolidation beginning.

The S&P 500's ability to establish fresh records despite data blackout and six-day government shutdown demonstrates fundamental strength and investor confidence in corporate earnings resilience. Bank earnings beginning next week provide the critical validation of profit growth justifying current valuations.

Risk appetite is clearly increasing as we advance toward my 6,800 year-end target. Small and mid-cap breakout attempts, Bitcoin's record weekly close, and precious metals strength all reflect broadening conviction across asset classes. While the path won't be linear, trajectory favors continued strength into year-end driven by multiple supportive catalysts.

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered investment advice. Please consult with your financial advisor regarding your specific situation.