The partial government shutdown is now the longest in United States history. Without getting into the politics that caused the shutdown, let’s discuss what the shutdown means for the stock market.
Historically, the stock market hasn’t been too affected by government shutdowns. While parts of the IRS and SEC are closed, other financial regulatory services are open, so securities trading and market operations continue. In fact, according to LPL Financial, for all previous shutdowns from 1976 to 2013, the median change in the S&P 500 was 0% and the mean was -0.6%.
However, this shutdown is breaking records, and we’re heading into uncharted territory. No one really knows how the markets will handle a month-long (or longer?) government shutdown. So far, the markets have largely held steady, but there are concerns the shutdown might begin to weigh on the economy and ultimately the markets.
For instance, on Tuesday the Whitehouse doubled its estimate of the shutdowns impact on GDP, according to CNBC. Reportedly, a Whitehouse official said the shutdown could shave half a percentage point off GDP if it continues through January.
Gregory Daco, chief U.S. economist at Oxford Economics, says the shutdown could slow growth to 1.5% if it runs through the end of March. Jamie Dimon, Chief Executive at JPMorgan Chase, warns that growth could be completely stalled if the shutdown lasts the entire first quarter of the year.
Also, financial analysts and professionals have been without key government data releases. Since the shutdown, there have been 10 government reports on housing, trade and consumer spending that have not been released that professionals generally rely on to gauge the markets.
At any rate, the past record of shutdowns suggests the markets will remain indifferent. Analysts are understandably more worried about the effect of the Fed’s interest rate increases and the trade war with China on the economy and the markets. However, we should all stay tuned to see the impact of the longest government shutdown in history.
For more financial information, follow NEXT Financial Group, Inc. (“NEXT”) on Facebook and LinkedIn and subscribe to this blog at the right-hand side of the page.
https://www.cnbc.com/2019/01/15/source-white-house-believes-shutdown-will-be-twice-as-costly.html
https://www.marketwatch.com/story/why-stock-market-investors-are-starting-to-worry-about-the-government-shutdown-2019-01-16
https://www.investopedia.com/news/how-shutdowns-dont-affect-market/
