(Bloomberg) — With Congress on the verge of shutting down the US government again, stock-market investors are prepared for the typical routine — lots of noise, little action. This time, however, could be different due to a case of poor timing.
(Bloomberg) — With Congress on the verge of shutting down the US government again, stock-market investors are prepared for the typical routine — lots of noise, little action. This time, however, could be different due to a case of poor timing.
Interest rate fears, rising bond yields, soaring oil prices and labor strikes have pushed the benchmark indexes down significantly from their mid-July highs. Meanwhile, traders are increasingly worried that the US economy could stumble into a recession sometime next year. The S&P 500 Index has tumbled 4.8% in September, while the Nasdaq 100 Index has retreated 5.8%, putting both on track for their worst months since December.
With this much uncertainty in the air, a shutdown would present another curve ball that investors and the Federal Reserve will need to contend with, particularly since certain economic data could be delayed, including those on employment and inflation.
A government shutdown “could add to the weight of current concerns, thereby pressuring the S&P 500 into an even deeper pullback,” said Sam Stovall, chief investment strategist at CFRA. That said, Stovall pointed out that during the longest shutdown, which lasted 35 days in 2018-2019, the S&P 500 rose 9.4%.
If the Senate is unable to reach a deal this week, the government will shut down on Oct. 1. People familiar with the talks say the parties are nearing an agreement on a short term spending measure.
The proposed stop-gap bill, which is “stacked with conservative priorities,” is unlikely to pass the Democrat-controlled Senate and avert a shutdown, Benjamin Salisbury of Height Securities wrote in a note last week. Salisbury expects any shutdown to last weeks, “considering the laundry list of partisan and parochial priorities that will have to be worked out before the government can be reopened.”
That could create headwinds for companies dependent on government interaction and services, such as defense supplies and other government contractors.
Taken together, this can provide investors a convenient excuse to avoid riskier assets in the short run, said Bloomberg Intelligence analyst Gillian Wolff. The S&P 500 dropped 15% in the first few weeks of December 2018 prior to that shutdown, but then rallied after it began, Wolff noted.
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