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US government shutdown may harm investor confidence.


Government Shutdown‌ Could Impact Economy, Investors Warn

By David⁢ Randall

NEW YORK‍ (Reuters) – A potential​ U.S. government shutdown at the end of September could add to worries about ⁢the economy going into year-end and beyond, investors ⁢said. ⁤

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Current funding for most government programs expires on Sept. 30. If ⁢lawmakers are unable to pass a new budget by then, large swathes of government⁢ functions would shut down, an event strategists at Goldman Sachs estimate would reduce U.S. economic ‌growth ⁤by‍ 0.2% ⁤for each week it lasted.

A partial closure of the government, which will not interfere with essential functions like the ​military or Social Security payments, is not ⁣seen to ⁣be as toxic⁣ to⁣ the economy as a failure to increase ‍the government’s debt‍ limit, an ‍outcome ‌lawmakers narrowly avoided ‍earlier this year.

Past shutdowns’ impact on U.S. stocks, ⁤meanwhile, has been slight: the ​S&P 500‌ has fallen by‌ an average of 0.4% in the week⁢ before a ⁤shutdown, and ​gained a total of 0.1% over the length of ​all shutdowns since 1976, according ‍to CFRA Research data.

Investors ‍might be more sensitive to a ‌shutdown this time around, however. Failure to pass a budget would ⁤highlight‍ the ⁣gridlock and political instability that​ ratings‌ agency Fitch cited ⁢as a reason for its downgrade of the U.S. ⁢credit rating in August, ‍a move that roiled markets‌ last ‌month.

At​ the ⁣same time, a shutdown ‍could lead⁢ to spending cuts⁣ that may dampen the economy at a time when ​other ​factors, including the Federal Reserve’s monetary policy tightening and‌ the resumption of payments on student ⁢loans, loom as a threat ‌to growth, analysts⁣ said.

Resilient growth in the face of higher ⁣interest rates has helped power the S&P 500 to a nearly ⁢16% gain this year, though the ⁢index⁣ is off some 4% from ‌its July highs following a⁤ surge in Treasury⁤ yields that has spooked some investors.

“You’re⁤ going to get some reduction in government spending because​ that’s the only way that these bills will pass,” said Jamie Cox,​ managing partner for Harris Financial Group, who is growing ‌more bullish on defensive sectors ⁤such⁤ as healthcare. “That will create a meaningful slowing ⁤of⁣ the economy.”

Hard-line Republicans in​ the House Freedom​ Caucus ‌have insisted they will ⁢not support the ⁣spending bills necessary to fund the government for its next fiscal year without paring discretionary spending to $1.47 ​trillion, ⁤$120 billion ⁣below the‍ level agreed ⁤to by House Republican Speaker ⁤Kevin McCarthy and President ‌Joe Biden.

Goldman Sachs estimates⁣ that such ‍a reduction⁢ would amount to a cut of 0.6% from ⁣the ‍current‍ U.S. gross domestic product.

With only weeks to go before the deadline, the Republican-led House of Representatives has approved only one of those 12 bills. Spending and‌ tax measures normally originate in ‍the House before moving to the Senate.

‘LESS FRIENDLY POLICY’

If it‍ occurs, the shutdown would be the fourth over the last ‌decade and would furlough roughly​ three of out five federal ‌civilian‌ workers. The ⁤government would continue making payments on Treasury​ bonds.

Past shutdowns have⁣ usually⁤ been ⁢resolved ‍in⁣ days, though a⁢ 2018 closure ran for ‍35 days and‍ shaved 0.1% ⁤and 0.2% from real gross domestic‍ product⁣ in the fourth quarter of 2018 and⁢ the first quarter of 2019, respectively, according to the Congressional Budget Office.

Paul Christopher, head of global investment strategy for Wells Fargo Investment Institute, believes any shutdown would likely be protracted‍ as ⁤Republicans⁤ and Democrats begin positioning themselves for the presidential and congressional elections next year.

A deal that does not cut into ⁢the⁣ U.S. budget deficit may push yields ‍on government debt higher, potentially extending ⁢a move that‍ has wobbled ‌stocks in recent weeks, said Christopher.

He is moving into areas of the market ⁣such as materials and industrials, believing high-flying⁢ sectors ⁤like tech are⁢ “overdue”⁤ for⁢ a correction.

The‍ White House last ​month said it was working with Congress to hammer ‌out a short-term funding⁤ measure to avoid a shutdown while longer-term spending⁤ talks continue.

Analysts at Ned Davis Research said a shutdown could add to factors threatening⁢ to roil the‍ economy into‌ next year.

“The potential for higher-for-longer⁣ monetary policy, the ⁣restart of student loan payments, a government shutdown, and lower ⁣(cost of living) adjustments in 2024 could combine for‌ less friendly ⁢policy for financial markets,” ‌they wrote.

The following table shows how the ⁤S&P 500 moved around each of ‌the 20 government shutdowns since 1976, according to data compiled ‍by CFRA Research.

S&P 500 Performance During Government Shutdowns

  • 9/30/1976 – ⁣10/11/1976: -1.4% before, -0.1% ‌on day,‌ -3.5% total
  • 9/30/1977 – 10/13/1977: 0.9% before, ‍0.7% on day, -2.5% total
  • 10/31/1977⁤ – 11/9/1977: 1.1% before, -0.3% on day, ⁤0.4% total
  • 11/30/1977 – 12/9/1977: -2.0% before, 0.3% on⁢ day, ‍-1.0% total
  • 9/30/1978 – ​10/18/1978: 0.7% before, 0.4%⁣ on day,⁤ -2.0% ‍total
  • 9/30/1979 – 10/12/1979: -0.2% before, -1.5%‍ on day, -5.2% total
  • 11/20/1981 – ‌11/23/1981: -0.8% before, 0.8% on day, 0.7% total
  • 9/30/1982⁢ – 10/2/1982: -1.8% before, 0.3% on⁢ day,‌ -0.1% total
  • 12/17/1982 ⁤- 12/21/1982: ‍-3.1% before, ‍1.6% on ​day,‍ 2.4% ⁤total
  • 11/10/1983 ⁣- 11/14/1983: 0.3%⁣ before, 0.3% on day, 1.6% total
  • 9/30/1984 -⁢ 10/3/1984: 0.3% before,⁤ -0.9% on day, -2.2% total
  • 10/3/1984 – ⁢10/5/1984: -1.6% before, -0.7% on day, -0.6% total
  • 10/16/1986 – 10/18/1986: 1.3%‌ before, 0.3% on day, -1.2% total
  • 12/18/1987 -⁣ 12/20/1987: ⁤3.3% before,‍ 2.5% on day, 2.7% ⁣total
  • 10/5/1990 – 10/9/1990: 2.2% before, -0.4% on day, -2.4% total
  • 11/13/1995 – 11/19/1995: 0.7% before, -0.1% ⁤on day, ​0.7% total
  • 12/15/1995 – 1/6/1996: -0.1%‍ before, -0.1% on day, 0.2% total
  • 10/1/2013 – 10/16/2013: -0.9% before, 0.8% on day, 2.4% ⁣total
  • 1/19/2018 – 1/22/2018: 0.4% before, ‍0.4%⁤ on‌ day, 1.2% ⁤total
  • 12/22/2018 -⁢ 1/26/2019: -7.1% before, -2.7% on ⁤day, 9.4% total
  • Averages: -0.4% before, 0.1% ⁣on day, 0.1% total

(Reporting by David Randall. Editing by Ira Iosebashvili and Marguerita Choy)

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What potential effects could a government shutdown have on investor confidence and the stock market

Government ⁤Shutdown Could Impact Economy, Investors ⁢Warn

By David⁢‌ Randall

NEW YORK‍ (Reuters) – A potential​ U.S. government shutdown at the end of September could add ​to worries about ⁣⁢the economy going into year-end and beyond, investors ⁤⁢said. ⁤ Current funding for most government programs expires​ on Sept. 30. If ⁢lawmakers ⁢are unable to pass a new budget by then, large swathes of government⁢ functions would shut down, an event strategists at Goldman Sachs estimate would reduce U.S. economic ‌growth ⁤by‍⁢ 0.2% ⁤for each week​ it lasted.

A partial closure of the ⁢government, which will not interfere with essential functions like the ​military or Social Security payments, is not ⁣seen to‍ ⁣be as toxic⁣ to⁣ the economy as a failure to increase ‍the government’s debt‍ limit, an ‍outcome ‌lawmakers narrowly avoided ‍earlier this year.

Past‍ shutdowns’ impact on U.S. stocks, ⁤meanwhile, has been slight: ‌the ​S&P 500‌ has fallen by‌ an average of 0.4% in the⁤ week⁢ before a ⁤shutdown, and ​gained a total of 0.1% over the​ length of ​all shutdowns since 1976, according ‍to CFRA Research data.

Investors ‍might be more sensitive ⁤to a ‌shutdown‌ this time around, however.​ Failure to pass ‌a budget‌ would ⁤highlight‍ the ⁤⁣gridlock⁢ and political instability that​ ratings‌ agency Fitch cited ⁢as a reason for its downgrade of the U.S. ⁢credit rating in August, ‍a move that roiled markets‌ ‍last ‌month.

At​ the​ ⁣same ‍time, a shutdown ‍‍could lead⁢ to spending‍ cuts⁣ ​that may dampen the economy at a time when ​other ​factors, including the Federal Reserve’s monetary policy tightening and‌ the resumption of payments on student ⁢loans, loom​ as⁣ a threat ‌to‌ growth, analysts⁣ said.

Resilient growth in the face‌ of higher ⁣interest rates has helped power the S&P 500 to a nearly ⁢16% gain this⁣ year, though the ⁢⁢index⁣ is off some 4% from ‌its July highs following⁣ a⁤ surge⁣ in Treasury⁤ yields that has spooked some investors.

“You’re⁤ going to get some reduction in government spending because​ that’s the only way that these bills will pass,” said Jamie Cox,​ managing ‌partner for Harris Financial Group, who ⁣is⁤ growing ‍‌more bullish on defensive sectors ⁤such⁤‌ as healthcare. “That will create a meaningful slowing ⁤of⁣ the economy.”

Hard-line Republicans⁤ in​ the ⁢House Freedom​ Caucus ‌have insisted‍ they will ⁢not support the ⁣spending bills necessary to fund the ⁣government for its⁣ next fiscal year⁢ without paring ​back funding for the Affordable Care Act, commonly known ⁤as Obamacare. Their stance has raised concerns among investors and economists who fear the potential economic impact of a government shutdown.

The prospect of a government shutdown has rekindled‍ fears regarding the stability of ‍the ⁣U.S. economy. With the⁣ Federal Reserve tightening its monetary policy and the resumption ‍of payments⁣ on student loans, a shutdown could further dampen economic growth. This⁣ concern is‍ compounded by the recent downgrade⁣ of the U.S. credit rating by ratings agency ⁤Fitch, ‌which highlighted political instability as one of the reasons ⁣for the downgrade.

While past government shutdowns have had minimal impact on U.S. stocks, investors may be more cautious​ this time around due to the current economic and ‍political environment. The S&P 500⁢ has already experienced a decline following a surge in Treasury yields. Furthermore, a shutdown ⁢could result in spending cuts that could further slow⁤ the economy.

The possibility of a government‌ shutdown should not be taken lightly, as it could have detrimental effects on the economy and investor confidence. It is important​ for lawmakers ‌to find a resolution and pass a⁤ new budget before the⁢ September 30 deadline in order to‌ avoid potential economic consequences.



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