US Government Shutdown Could Weight on the Market

Although the financial markets ignored so far the US government shutdown, the sentiment could begin to gradually deteriorate from now on, considering that on January 12th, 2019, it is the longest shutdown in the history of the US.

US Government Shutdown

No funding for the wall

One of the biggest campaign promises of Donald Trump had been a wall at the southern border and despite tough opposition from the Democratic side, the US President is not willing to give up on his $5.7 billion request.

Things had become more complicated since the Democrats took control over the House of Representatives on January 3rd. The wall is widely attributed to President Trump and further opposition regarding the funding of such a project will only put pressure on him, which is why the Democratic Party is not open to compromise.

Several rounds of negotiations had been taking place recently, but either side was willing to make concessions, leaving several hundred thousand government workers without pay.

No negative market reaction

Each time there was a disagreement between the biggest parties in Washington, the general belief from investors had been “politicians will eventually need to come to an agreement”. That is why the stock market had an impressive performance since the shutdown begun, with all three major indices banking gains of approximately 10% each.

Analysts generally consider that a 2-week government shutdown can drag the economic growth by 0.1%. It is essential for each trader or investor to carefully read or watch market outlooks, like the market outlook, in order to be up-to-date with all the implication of a prolonged shutdown on the US economy.

The market had been pricing in lower returns from the corporate side and slower economic growth, as the fiscal stimulus had already dried out. Political uncertainty will further dampen GDP expansion and put further pressure on risk assets like stocks.

At the present time, no sign of compromise can be seen from either side, meaning the shutdown will be in play for the next few days. As the earnings season is about to kick in, the market sentiment could gradually deteriorate.

Bipartisan bills which had not included the funding for the wall had already been passed by Congress, but the US President was unwilling to sign any of those, keeping his claims for a border wall at the same level. Until any sign of compromise will be seen, the shutdown will begin to be taken more seriously into account by all the market participants.

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