The Dow and S&P 500 registered record closing highs Friday even as the U.S. government shutdown went on for a third day, with interest rate-cut expectations improving as the U.S. government shutdown went on for a third day, while the Nasdaq eased. Shares of big tech-related names mostly fell.

Shares of Applied Materials were down after the chip-equipment maker late Thursday forecast a $600 million hit to fiscal 2026 revenue.

Shares of Tesla also were lower, while the S&P 500 utilities gained.

The U.S. government shutdown dragged on for a third day. 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 Fed.

"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 market has historically been mostly unaffected by shutdowns but some strategists said that a longer shutdown could create more uncertainty for investors and for Federal Reserve policymakers.

According to preliminary data, the S&P 500 gained 0.47 points, or 0.01%, to end at 6,715.82 points, while the Nasdaq Composite lost 63.19 points, or 0.28%, to 22,780.86. The Dow Jones Industrial Average rose 242.00 points, or 0.52%, to 46,761.72.

"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.

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