Nike’s shares surged more than 4% in after-hours trading. That spike came after the ecommerce company’s shocking fiscal first quarter earnings and revenue beats. That was a shocker. Many economists had not been expecting anything close to this sort of performance. Nike had already predicted a mid-single digit percentage drop in revenue for the period ending August 31. After the sportswear titan announced a lackluster 1% revenue growth, this indicates that the company is still very strong fundamentally, despite the broader economic worries.
The backdrop for Nike’s impressive performance is a rapidly approaching government shutdown, which is expected to commence at midnight unless Congress reaches an agreement to fund the government before Wednesday’s deadline. The GOP Senate is already poised to pass a stopgap spending bill. In the House, Democrats are trying to ensure that it includes provisions that would extend health care tax credits, helping millions of Americans.
This is a point President Donald Trump himself has spotlighted. Yet still he described a government shutdown as “probably likely,” casting blame on the Democrats for the gridlock. The federal government is facing its own potential stoppage. In reaction, the U.S. Securities and Exchange Commission has instructed its staff to prepare for a government shutdown, highlighting how serious things are becoming.
Mark Luschini, chief investment strategist at Janney Montgomery Scott, emphasized concerns regarding the lack of government data during a shutdown. This included highlighting the possibility of delays on critical reports. A perfect illustration would be the Bureau of Labor Statistics (BLS) jobs report, due out on Friday. Luschini remarked,
“The lack of government data, especially the all-important BLS jobs report on Friday, does lend a concern as it was due to be released during a recent period in which the labor market showed signs of weakening and was a catalyst for the Federal Reserve to reduce interest rates just a couple weeks ago.”
Even with these worries, historical trends indicate that government shutdowns tend to have little lasting effect on equity markets. Luschini stated,
“If past is prologue, however, these shutdowns usually end fairly quickly and pass without much dislocation to equity prices. In the meantime, investors will lean on other data to corroborate evidence that the job market and the economy are stable.”
The S&P 500 Index jumped by 7.8% during the third quarter. Government shutdowns and the stock market Historically, stocks have done quite well whenever the government has shut down. New research from Raymond James shows a surprising and troubling trend. In fact, stocks averaged more than a 3% return during previous shutdowns, including the S&P 500, MidCap 400 and Small Cap 600 indices.
Investors are sifting through Nike’s bullish earnings release. At the same time, the specter of a government shutdown is keeping market volatility very high in the short term.
Corporate earnings
Many miracle workers hope corporate earnings will bounce back. They assume these hard-fought gains can absorb a few months of dislocation brought on by political gridlock.