Never Mind the Shutdown. The Case for Stocks Rallying in the Fourth Quarter.

(TIMOTHY A. CLARY/AFP via Getty Images)

A healthy rally or a speculative dash for trash? The third quarter is ending on a strong note for stocks, but there are reasons to be wary of the most overexuberant areas of the market.

The statistics are relentlessly upbeat. The S&P 500 is set to end the quarter on a five-month winning streak. The benchmark index is up more than 13% so far this year, and on pace for its best September gain since 2013. And that’s before what is historically the strongest quarter of the year.

But there are a few worrying signs of mania. Meme stocks such as Opendoor Technologies continue to be the focus of intense trading. Crypto-treasury stock plays keep generating sharp gains by announcing plans to amass obscure digital tokens. That’s a symptom of individual investors increasingly driving the market—retail trades account for 18% of stock market volume, up from 10% in 2010, according to the latest estimates by Sifma, a Wall Street trade group.

Investors’ optimism is predicated on the Federal Reserve cutting interest rates. But some Fed speakers are pushing back against those forecasts while inflation remains high. A looming government shutdown threatens to delay the September jobs report, further complicating the decision for monetary policymakers who are already split.

So is it just dumb money chasing speculative highs? Well not so fast. Strategists at Goldman Sachs just upgraded their stance on global equities to “overweight” from “neutral” over a three-month horizon. Even if the economy is slowing, a low risk of recession and supportive monetary and fiscal policy has historically led to stock market gains, they noted.

The historical record and economic fundamentals largely agree—the fourth quarter could bring gains that investors won’t want to miss out on. But it’s still worth avoiding the trashiest areas of the market.

—Adam Clark

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Federal Shutdown Nears as Lawmakers Fail to Break Impasse

Lawmakers failed to reach agreement in a White House summit, potentially setting up a federal shutdown late tonight that could be far more painful than previous episodes. Both Democrats and Republicans are blaming each other for the impasse, but polling shows voters hold Republicans slightly more responsible.

• Congressional leaders summoned to the meeting by President Donald Trump departed the White House taking swipes at each other. Vice President JD Vance said things were headed to a shutdown because Democrats wouldn’t do the right thing and support a temporary funding extension without additional demands.
• Democratic leaders Sen. Chuck Schumer and Rep. Hakeem Jeffries said they would continue to push for negotiations on restoring funding for healthcare insurance subsidies that expire this year. This is what they want added to the temporary funding measure. Republicans say the issue can be debated separately.
• A shutdown would start at 12:01 a.m. on Wednesday, meaning there are just hours left to strike a deal. It usually means a halt to nonessential services, furloughs of government workers, and the closing of national parks. It would also delay the release of the September jobs report, due Friday.
• Polls show that most voters don’t want a shutdown. About 34% of adults said they would blame Republicans for a shutdown versus 23% for Democrats and 34% for both parties equally, according to a poll by Strength in Numbers/Verasight earlier this month.

What’s Next: While prior standoffs have been short-lived, there are ample reasons for both parties to dig in this time. Democrats received significant blowback after voting to keep the government open in a similar standoff in March. The Senate could vote again today on the already passed House bill.

— Joe Light and Liz Moyer

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Boeing Might Design a 737 MAX Replacement

Boeing might finally be ready to take the plunge and design a new single-aisle aircraft. The plane maker is considering a new jet to replace the 737 MAX, The Wall Street Journal reported.

• “Our teams continue to be focused on our recovery plan, including delivering on our existing backlog of nearly 6,000 commercial airplanes and certifying the new 737-7, 737-10, and 777-9 models,” said a Boeing spokesperson in an emailed statement.
• It’s a huge step that potentially commits the company to billions of dollars and multiple years of product development. The payoff is improved market share in key market segments.
• Wall Street has speculated about a new jet for years. Any new single-aisle jet doesn’t have to replace the MAX per se. It is likely to be a little larger than a 737 MAX and capable of carrying anywhere from 200 to 250 passengers.
• Boeing might have acted sooner on a new jet if not for problems with the MAX, which included two deadly crashes in 2018 and 2019. Management and multiple CEOs have been focused on fixing MAX design and production and putting Boeing back on a more solid financial footing.

What’s Next: Investors can expect other engine makers, including GE Aerospace, Safran, and RTX, to enter the fray, in addition to Rolls-Royce which is already in discussions with Boeing, according to the Journal. Shares of Boeing, Airbus, and the engine makers are likely to be volatile over the coming days, while investors sort things out.

— Al Root

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AI Race Heats Up, With More Capable Models and Shopping

Artificial intelligence start-up Anthropic unveiled what it considers its most capable model yet, called Claude Sonnet 4.5, which can code on its own for 30 straight hours and perform tasks better than earlier models. It is aiming to excel at AI agents, which use a person’s computer to perform tasks for them.

• Anthropic said the newest model is the strongest for building complex agents and shows substantial gains in reasoning and math. Many technology executives expect the advent of AI agents to drive the next wave of technology industry growth.
• Claude Sonnet 4.5 comes on the heels of Anthropic’s other recent releases, including Claude Opus 4.1 in August and Claude Sonnet 4 earlier this year. Models have made progress at meeting practical business needs, with Sonnet 4.5 especially suited to cybersecurity and finance.
• Earlier in September Anthropic said it completed a $13 billion fund-raising led by tech industry investor Iconiq and others, for a $183 billion valuation. Competitors such as OpenAI and Alphabet’s Google are also building similar capabilities, with OpenAI slated to hold a developer conference next week.
• OpenAI said users of its bot ChatGPT can now buy items from U.S. Etsy sellers directly on its popular AI platform. When a user asks a shopping question, ChatGPT will link to relevant products from across the web. Merchants pay a small fee for completed purchases.

What’s Next: OpenAI plans to add more merchants to Instant Checkout by open-sourcing the technology that powers its checkouts, but said Instant Checkout items won’t be preferred in search results. Over a million Shopify merchants, including Glossier, Skims, Spanx, and Vuori, are coming soon.

— Tae Kim, Sabrina Escobar, and Janet H. Cho

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Electronic Arts Is in a Leveraged Buyout. Is the Price Too High?

Videogame producer Electronic Arts’ $55 billion leveraged buyout could be a challenge for investors Silver Lake and others, which are paying a lofty price and putting up a substantial amount of equity. Both factors work against generating a big investment return, assuming the deal gains shareholder approval.

• The deal includes debt. In addition to private-equity firm Silver Lake, the buyers group includes Saudi Arabia’s sovereign-wealth fund and Affinity Partners, a firm headed by President Donald Trump’s son-in-law Jared Kushner. The deal would be the largest LBO ever.
• The buyers will pay $210 a share in cash, a 25% premium to Thursday’s closing price. The Wall Street Journal reported Friday that the company was in talks to go private. Given the size of the deal and the board’s blessing of the transaction, it seems unlikely that there will be a topping bid.
• Citi analyst Jason Bazinet told clients the potential LBO suggests a relatively muted internal rate of return for the buyers, which he calculates around 3%, assuming an exit multiple of 15 times earnings before interest, taxes, depreciation, and amortization after five years. LBO buyers usually aim for midteens returns.
• The Silver Lake group plans to contribute $36 billion of equity, including an existing 10% equity stake now held by the Saudi fund, and borrow $20 billion through JPMorgan Chase. The higher the equity contribution, the lower the potential IRR because the buyers don’t benefit as much from leverage.

What’s Next: Even with the high equity contribution, the new Electronic Arts will carry sizable leverage of more than $20 billion, including assumed debt, or about seven times projected Ebitda, in the company’s fiscal year ending in March, Barron’s estimates.

— Andrew Bary

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Fermi IPO Promises to Go Nuclear For Investors

Fermi, a real estate investment trust and nuclear energy firm co-founded by former Texas Governor and Energy Secretary Rick Perry, is expected to price its initial public offering this week. Fermi aims to build massive power plans to generate electricity for artificial intelligence data centers.

• By 2038, Fermi expects to be able to generate 11 gigawatts of power —more than five times as much as the Hoover Dam—from several natural gas plants, four large nuclear reactors, arrays of solar panels, and batteries. The nuclear component will be called the “Donald J. Trump Generating Plant.”
• One of dozens of Texas projects designed to power data centers, Fermi has a 99-year lease on a nine-square-mile parcel of land from Texas Tech University in Amarillo, close to a large natural gas field and major natural gas pipelines owned by Energy Transfer and ONEOK.
• Organized as a REIT, a structure that normally generates a lot of dividends for shareholders, Fermi said its large investment expenses mean it won’t be issuing dividends for a while. Fermi spent $6.4 million through June 30, and expects to keep incurring operating losses.
• Nicholas Colas, co-founder of DataTrek Research, said the rebound in IPO activity is a good sign of general market sentiment, adding that many of today’s biggest companies went public in the past two decades, including Amazon.com, Alphabet, Broadcom, Meta Platforms, Nvidia, and Tesla.

What’s Next: Fermi is aiming to sell 25 million shares in a range of $18 to $22, for a capital raise of up to $550 million. The IPO could value Fermi at more than $13 billion. It plans to list on the Nasdaq and the London Stock Exchange under the ticker “FRMI.”

— Avi Salzman, Paul R. La Monica, and Janet H. Cho

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—Newsletter edited by Liz Moyer, Rupert Steiner, Callum Keown