The U.S. government is experiencing its first shutdown since President Donald Trump’s initial term, yet markets remain largely unaffected so far.
U.S. Treasury yields were relatively unchanged in the first business day of the shutdown, and most major stock indexes hardly shifted. While shutdowns can concern investors for several reasons, the most recent shutdown in December 2018, which lasted 34 days, did not lead to a market downturn.
“What could a shutdown do for stocks, you ask? The good news is history says shutdowns have little to no effect on them,” said Ryan Detrick, chief market strategist at Carson Group, in a statement. “In fact, the last shutdown, in 2018-2019, was a record 34 days and stocks gained more than 10%.”
Over the past 50 years, the U.S. has faced 20 government shutdowns, lasting an average of just eight days. On average, the stock market has only declined by about 1.6% during a shutdown, with the largest drop—6.1%—occurring during a shutdown in 1979, according to LPL Financial. Additionally, following the approval of a budget resolution to end that shutdown, the S&P 500 averaged returns of 1.2% and 2.9% over the next one and three months, respectively. according to LPL.
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Although a government shutdown brings added uncertainty to the markets, most shutdowns do not last long enough to have a major impact on the economy.
However, while investors may focus on corporate earnings and macroeconomic data during a government shutdown, one crucial metric—the Bureau of Labor Statistics jobs report—will not be released if the government remains closed. The report, which provides data for unemployment in September, is set to be released on Friday and is regarded as important for assessing labor market conditions.
The BLS is one of the several Department of Labor agencies that temporarily discontinues operations when a shutdown occurs. The report has grown increasingly important this year, as employment numbers have weakened in recent months.
More eyes than usual are expected to focus on this report, because Trump fired the agency’s head, Erika McEntarfer, an appointee of former President Joe Biden, on August 1 after an especially weak July jobs report and revisions that showed May and June hiring was weaker than previously expected.
Trump had nominated E.J. Antoni, chief economist at the Heritage Foundation and a critic of the BLS jobs report, to lead the agency, but the White House announced Tuesday that Trump is rescinding his nomination and will name a new candidate shortly.
The ADP National Employment Report, an independent monthly report on private sector employment, showed September was another weak month for employment. The report found that private employers cut 32,000 jobs in the month, with all but the largest employers posting negative employment figures. Only three of the 10 industries tracked in the report added jobs during the month.
Tags: Congress, government shutdown
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