A part of the U.S. government could shut down after midnight on the East Coast because the Republican-controlled House and the Democratic-controlled Senate have not yet passed legislation to keep many federal offices and programs funded.
A smaller bill that most Republicans in the House and President-elect Donald Trump backed failed to pass that chamber of Congress late Thursday night. This left House Speaker Mike Johnson trying to figure out what to do next.
The smaller bill failed after a much bigger bipartisan package was turned down by many Republican lawmakers on Wednesday. Trump and his billionaire friend Elon Musk pushed these lawmakers to take that stand.
Then what does all the trouble in D.C. mean for investors?
Thought leader Paul Christopher of the Wells Fargo Investment Institute said that his group would rather “look through any shutdown.”
Christopher wrote in a note, “Even if a shutdown happens, we believe there is likely to be little economic or financial market impact.” Christopher is in charge of global investment strategy. “A shutdown would only affect spending that people choose not to do, not payments for Social Security or Medicare.” Discretionary spending is a small part of overall federal spending, and we think that any short-term problems will be easily fixed by making up for lost payments once a new agreement is reached.
In the same way, Brian Levitt, a global market strategist at Invesco, said that many previous shutdowns, but not all of them, caused market volatility, but it “tended to resolve quickly with limited to no impact.”
“Don’t let the short-term changes in the market caused by a government shutdown change your long-term plan to invest,” Levitt added.
There have been six government shutdowns of five days or more since 1978. During the last four shutdowns, the S&P 500 Index SPX +1.09% went up. The table above shows that background. It comes from a note written by Brian Gardner on Friday. Gardner is the chief Washington policy strategist at Stifel.
The table shows that the S&P 500 went down during the shutdowns of 1978 and 1979. This means that there hasn’t been a selloff during a long shutdown in more than 40 years.
Gardner wrote, “In general, the shutdown has a small and short-term effect on the economy, and investors seem to understand this based on how the market has responded to previous shutdowns.”
Polymarket, a forecast market, recently dropped the chance of a government shutdown from as high as 77% to 53% on Friday.
The S&P 500 was up in recent trading, but it was still on track for a big weekly loss after its drop on Wednesday. That drop was caused by new expectations from the Federal Reserve that interest rates will be lowered more slowly next year than had been expected.
