Markets delivered a strong performance last week, buoyed by upbeat corporate earnings and a modest improvement in economic sentiment, even as the government shutdown continued to cast a shadow over the data calendar.

U.S. equities sank last week as renewed U.S.–China trade tensions took center stage, and the ongoing government shutdown added more clouds to the outlook. For the week, S&P 500 fell 2.4%, the Dow dropped 2.7%, and the Nasdaq declined 2.5%.

U.S. equities continued to push to new all-time highs this past week and closed out another strong calendar quarter. The Dow Jones and S&P 500 gained 5.7% and 8.1% in the third quarter, adding to strong year-to-date gains, while the tech-heavy Nasdaq and small cap Russell 2000 surged even higher with returns of 11.4% and 12.4%, respectively.

After three consecutive weekly gains, U.S. equities took a breather as stronger-than-expected economic data complicated the interest rate outlook. The S&P 500 slipped 0.3%, the Nasdaq declined 0.7%, and the Dow edged down 0.2%, with all three indices pulling back from record highs set earlier in the week.

Markets spent most of the week in wait-and-see mode ahead of the Fed’s September meeting, and the outcome was largely as expected: a 25 basis point rate cut. But beneath the surface, the tone is shifting.