With the U.S. government officially entering a shutdown on Wednesday, concerns are mounting about the impact on the nation’s institutional credibility and fiscal standing. According to Luke Bartholomew, deputy chief economist at Aberdeen, this latest shutdown reflects ongoing “dysfunction” within the U.S. political system. Traders in prediction markets believe the shutdown will extend to at least two weeks. That time frame aligns closely with the average duration of previous government shutdowns since 1990, based on historical data from Bank of America.
In spite of the political storm, the stock market showed remarkable bullishness. The S&P 500 index recently reached an all-time high! It closed above the 6,700 mark for the first time—a remarkable feat considering the shutdown continues. Historically, the S&P 500 has risen by an average of 1% in the week preceding and following a government shutdown, according to Bank of America data. As it turns out, this trend definitely seems to be true, stock markets stormed ahead, with the S&P 500 one such indicator reaching an all-time high.
The effects of the shutdown go beyond U.S. borders, possibly affecting global markets as investors react to spikes in sentiment. Joe Brusuelas, chief economist at RSM U.S., noted that the shutdown could exert further pressure on the U.S. dollar and may influence the Federal Reserve’s upcoming rate decision in October.
In another sign of economic development, private payrolls decreased by 32,000 in September, the ADP reported. This 74,000 drop is a dramatic departure from economists’ predictions for a 45,000 gain, according to a Dow Jones survey. The disappointing jobs report was absorbed by the market without much negative impact, instead focusing attention on the economy’s continued struggles.
The juxtaposition of a government shutdown with a robust stock market performance raises questions about investor confidence and economic stability. Many observers fear the effects of extended government paralysis. Some point to equity markets’ recent resilience as proof of underlying strength.