U.S. Government Shutdown – What it Means and how it may Effect Markets


On Monday congress finally found common ground and signed in a funding bill – at least short term, this postpones the government shut-down for approximately 20 more days. This in fact the 4th short-term funding pushed through – the biggest hang up being DACA and the Trump administration’s intent to cancel it. DACA allows for children that migrated illegally to the United States and grew up there, to remain in the U.S.
What does the US government shutdown really mean however? How does it impact markets? Let’s take a look:
The S&P500, Dow Jones and Nasdaq 100 and the government shutdown
According to CNBC Dow Jones momentarily slipped 101 points on the announcement of the government shutdown. Nasdaq fell 8 point and S&P 500 dropped 2 points. So, there was definitely an reaction to the news. Comments from the Trump’s camp seem to keep consistent with their overall voice “This is the behavior of obstructionist losers, not legislators” said press secretary Sarah Sanders.
This rift has obvious made markets nervous of potential policy instability – we saw both U.S. stock and the dollar slip as the Trump administration tried repeatedly to unsuccessfully push through their Obama-care reform bill. Although U.S. stock has been on an unprecedented bull run, top analysts and industry experts fear that this is a momentary rally and not sustainable, viable growth. Since Davos is going on, it was rock-star hedge fund manager George Soros that said that uncertainty is the biggest of investment long term during last year’s summit. On the reverse side Soros also estimated that the crash would’ve happened soon, but last year the NYSE broke record after record high.
Like I said though 101 point drop the Dow Jones experienced was momentary. Overall because the government shutdown only effects “non-essential” government employees, and although it affects about 40% of US government employees – it doesn’t necessarily have significant economic impact. As such it doesn’t have a significant impact on markets.
The thing that markets are reacting to is the policy-makers (i.e. Congress) flexing their muscles at the administration. Shutting down the government, basically translates to instability, polarization in the capital and the ineptitude to pass policy.
Could the US Government Shutdown Be Something Else?
It could have also been a diversionary tactic – because as every single news outlet in the world (OK I’m being ….) was dealing with the shutdown, the Trump administration was signing a bill which imposes a potentially crippling 30% on solar panels and washing machines. Sure, it might not be as nefarious as hurting alternative energy in lieu of dirtier but potentially more profitable oil and coal – but it may help American solar panel manufactures corner the US market, which also means they will have the ability to manipulate the price (unofficially of course since it’s illegal to do it officially).
So we will have to wait and see in 17 days (which is the period the most recent bill will take to expire) if the Trump administration will be able to cancel DACA, or have to compromise like they did (again repeatedly) with Obama-care.
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