Dow, S&P 500 manage record closing highs; Nasdaq falls in volatile session

The S&P 500 eked out a record closing high in a volatile session Friday, with interest rate-cut expectations holding up as the U.S. government shutdown went on for a third day.

The Dow also posted a record closing high, but the Nasdaq ended lower.

The S&P 500 technology sector eased, with shares of Applied Materials declining 2.7% after the chip-equipment maker late Thursday forecast a $600 million hit to fiscal 2026 revenue.

Shares of Tesla were 1.4% lower, while utilities rose 1.2% and led gains among S&P 500 sectors.

The U.S. nonfarm payrolls report for September was due for release on Friday, but was not published due to the government closure. Investors were still able to digest a survey by the Institute for Supply Management, which showed the services employment index contracted for the fourth consecutive month. The news underscored the case for more interest rate cuts from the Federal Reserve.

"It certainly feels like momentum is on the side of investors over the last few days," said Mona Mahajan, head of investment strategy at Edward Jones.

It seems like "the market probability of a Fed rate cut has actually gone up since the shutdown began," she said. "Maybe that's because there's the potential impact on the economy or some weaker jobs data this week or this morning's ISM data... the expectation is we're still in this environment where the Fed is going to cut rates."

The Fed cut rates in September for the first time since December amid recent labor market weakness. On Wednesday, a report showed a decline in private payrolls of 32,000 and a downwardly revised 3,000 decline in August.

The Dow Jones Industrial Average rose 238.56 points, or 0.51%, to 46,758.28, the S&P 500 gained 0.44 points, or 0.01%, to 6,715.79 and the Nasdaq Composite lost 63.54 points, or 0.28%, to 22,780.51.

For the week, the Dow gained 1.1%, the S&P 500 also climbed 1.1% and the Nasdaq rose 1.3%.

The market has historically shrugged off government shutdowns, but some strategists said that a longer shutdown could create more uncertainty for investors and for Fed policymakers.

"The market generally looks past government shutdowns because they don't usually last long and they don't have a longer-term negative impact on the economy," said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.

"But the longer it goes... it means the data collection for really important reports could get delayed, or it could cloud some of the data that we will eventually get because the data collection wasn't happening over an extended period."

Chicago Fed President Austan Goolsbee said he was hesitant to commit to a series of rate cuts with inflation still running above the target.

According to the CME Group’s FedWatch Tool, traders see a 25-basis-point cut at the Fed's October meeting as almost certain and are pricing in an 84% probability of an additional cut in December.

Shares of USA Rare Earth rose 14.3% after CEO Barbara Humpton told CNBC the company was "in close communication" with the White House.

Advancing issues outnumbered decliners by a 1.72-to-1 ratio on the NYSE. There were 686 new highs and 55 new lows on the NYSE.

On the Nasdaq, 2,813 stocks rose and 1,880 fell as advancing issues outnumbered decliners by a 1.5-to-1 ratio.Volume on U.S. exchanges was 20.47 billion shares, compared with the 19.01 billion average for the full session over the last 20 trading days.