Stocks usually recover quickly after a government shutdown of five days or more.
Sarah Selbiger/Bloomberg
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The White House notified federal agencies of Prepare for closing that starts next week If Congress fails to reach agreement on government funding. How did the stock market react? The
And
The week ended with slight gains.
A cautious market is not out of the ordinary ahead of a possible government shutdown. But those closures didn’t leave much of an impact, either.
“It’s normal for the market to take a break and be a bit nervous before the close,” said Charles Lemonides, chief investment officer at hedge fund ValueWorks in New York.
Unless Congress approves the funding bill by September 30, the federal government will face it first shutdown During the pandemic, the fifth over a decade.
Democratic Representatives Bill passed Wednesday That would simultaneously fund the government until December 3, and suspend the US borrowing limit. Treasury Secretary Janet Yellen warned, without raising the limit, that the United States could default on its loans. However, the bill is expected to kill in the Senate, where it would need at least 10 Republicans to pass it.
Historically, government shutdowns alone have not significantly affected stock returns, David Kostin, chief US equity strategist at Goldman Sachs, wrote in a note earlier this week.
In 14 closes since 1980, the S&P 500 has averaged a return of -0.1% on the day the budget was set to expire, 0.1% during closing periods, and 0.3% on the day the closes resolved, according to Kostin.
| Closing start date | President | Length in days | Performance during the funding gap | Resume daily funding | After one week | after one month |
|---|---|---|---|---|---|---|
| 9/30/1976 AD | stronghold | 10 | -3.41% | -0.90% | -0.17% | -1.97% |
| 9/30/1977 | Carter | 12 | -3.19% | -0.63% | -0.83% | 2.71% |
| 10/31/1977 | Carter | 8 | 0.69% | 0.57% | 2.66% | 0.73% |
| 30/11/1977 | Carter | 8 | -1.23% | 0.76% | -0.27% | -3.17% |
| 9/30/1978 | Carter | 17 | -2.01% | -0.77% | -3.16% | -6.04% |
| 9/30/1979 | Carter | 11 | -4.42% | -0.53% | -2.76% | -0.94% |
| 11/13/1995 | Clinton | 5 | 1.31% | -0.54% | -0.02% | 1.98% |
| 12/15/1995 | Clinton | 21 | 0.06% | 0.28% | -2.42% | 4.80% |
| 9/30/2013 | Obama | 16 | 3.07% | 0.67% | 1.09% | 3.75% |
| 12/21/2018 | trump | 34 | 10.27% | 0.85% | 1.57% | 4.93% |
Data collected by Dow Jones Market Data. The statistics only include funding gaps since 1976 and those lasting five days or more.
Source: Congressional Research Service
A separate analysis of market data from Dow Jones found that during the last four government shutdowns lasting more than five days, the S&P 500 made gains. At the latest close, which began on January 25, 2019, and lasted 35 days, the S&P 500 rose 10%, according to the analysis.
The analysis also indicates that the markets are making a quick recovery after an extended close of five days or more. The S&P 500 was, on average, positive one month after the government shutdown.
Kostin wrote that while lockdowns do not consistently affect markets, the underlying macroeconomic environment does. The economist cited the debate over the US debt limit, and the Treasury’s ability to pay its bills, as an imminent risk to the market.
Lemonides was more upbeat, saying he expects the market to rebound quickly after the debt ceiling standoff is resolved due to the influx of economic stimulus included in bills Democrats are looking to pass.
“Once the lockdown is resolved, the bigger picture that was there before that is in place then becomes the driver,” Lemonides said.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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