Here’s What Wall Street Thinks About The Government Shutdown

The government isn’t working.

If you were to make that statement on any given day, it would be accurate in a figurative sense, but on Saturday it’s accurate in a literal sense.

For Democrats, this is the #TrumpShutdown. For Republicans it’s the #SchumerShutdown. The fact that we’re now defining our political reality in social media hashtags itself says a lot about the state of  civil discourse in America.

 

Blame-casting is pointless here. Mitch McConnell says this was “100% avoidable” and blames Democrats for what he calls a “cynical decision” to shut the government over “political games.”

Chuck Schumer says this was 100% avoidable and blames Trump, who Chuck says “walked away from two bipartisan deals, including one that included his border wall.”

They’re both right – about the 100% avoidable bit.

I mean think about the sheer absurdity in that for a minute. We’ve got the two people who could have stopped this telling America that it was “100% avoidable”. That’s like King Kong and Godzilla getting into a fight in the middle of a large city, destroying the city, and then holding a joint presser and both saying “look, this was 100% avoidable”. See what I’m saying? It’s fine for outside observers to analyze the situation and explain why they think it was avoidable, but for the two people who literally could have avoided it to say that is tautological and thus entirely ridiculous.

Meanwhile, Trump is of course tweeting about it and honestly, nobody cares. If anything, both Republicans and Democrats should have gotten together ahead of time and just factored him out of the equation. He’s not a reliable partner for Democrats for obvious reasons and if Republicans learned anything from the September experience when he folded to Schumer, it should have been that Trump is not a reliable partner for Republicans either. Additionally, Trump’s tweets over the past couple of weeks and the schizophrenic immigration meetings he invited the media to film earlier this month all clearly indicate he’s not a reliable “partner” to himself, because he doesn’t have a set of beliefs. He just has that wall which, by the way, he doesn’t really believe in either according to multiple reports – he’s just sticking with that because to give up on it would be to go back on one of his most bombastic campaign promises.

The point: Democrats and Republicans should have compromised with each other first and then once that was done, figured out together how to present that compromise to Trump in a way that would pacify him and make him feel like he “won”. I realize that’s a rather deplorable (pardon the pun) state of affairs, but it’s reality. He can’t be involved in anything. He needs to be sidelined from the process and then brought in later once the deal has already been sealed. Then you let him think he sealed it and pat him on the back and hold your tongue while he tweets about it. That’s the only way to get anything done. Recall what Lindsey Graham said earlier this week:

 

Lindsey’s being a bit disingenuous in the interest of giving everyone hope, because if you go back and listen to what Graham was saying while Trump was still campaigning it’s clear that Graham doesn’t think Trump belongs anywhere near the White House, but you get the point.

Anyway, it is what it is.

So at this point, the only question on your mind is undoubtedly this: “what does Wall Street think?” Or, more colloquially: “Where is Ja?”

 

Well thankfully, the Street isn’t going to leave you hangin’.

“Federal government ‘funding gaps’ or ‘shutdowns’ are relatively common. Since 1976, the federal government has experienced 18 funding gaps under the current budget process, although most did not result in a shutdown of operations or a furlough of non-essential employees,” Barclays writes adding that “this would be the first true shutdown under one-party rule.”

BarcShutdown

Based on Barclays’ analysis of previous shutdowns, every week the shutdown is in effect dents growth in the quarter by 0.1pp:

BarclaysShutdown2

For their part, Credit Suisse reassures you that “there is minimal evidence that past shutdowns impacted equity markets, growth or employment so while this recent pattern of funding the federal government through short-term continuing resolutions makes it difficult for federal agencies to make spending plans, and makes it difficult for Congress to accomplish other tasks, a short-term shutdown doesn’t pose a major risk to GDP growth forecasts.” Here are a couple of visuals that might help you sleep better if you recently bought into the most overbought market in history:

Shutdowns

“Government shutdowns are certainly disruptive to the economy, and can have a minor negative impact on GDP,” Credit Suisse continues, before implicitly telling you to calm down because after all, “the impact tends to be restricted to the time period when the shutdown takes place, and a relatively short government shutdown is unlikely to create a financial crisis or plunge the US economy into its next recession.”

As for Citi, the bank notes that “there is generally a risk-off move into the event but the moves are usually relatively small and subsequently reverse.” Well, if all we had to worry about was a “risk-off move into the event”, then we can just go ahead and pretend like this never happened because, well, because stocks hit records this week. For what it’s worth, here’s one table from Citi:

CitiChutdowns

Finally, Goldman was out with another update on this and while it’s largely just a follow-up to their previous piece (excerpts here), there are some notable bullet points and for the time being, we’ll just bring you those and leave it at that.

Via Goldman

  • A shutdown would have a modest impact on markets and the economy, we believe. We estimate that each week of shutdown would reduce real GDP growth in Q1 by 0.2pp, qoq annualized. The effects would be reversed in Q2, assuming the shutdown has ended by then. Markets have also tended to react mildly to shutdowns. In shutdowns since 1981, the median change in the S&P 500 on the first day of a shutdown is -0.9%. Most shutdowns haven’t lasted longer than a day or two, but of the three longer shutdowns (Nov., 1995, Dec. 1995-Jan. 1996, and Oct. 2013) the average change in the S&P 500 from the day before the shutdown to the lowest point during the shutdown was -1.5%; the average change from the last day before the shutdown to the last day of the shutdown was +1.2% in those three experiences.
  • A shutdown starting [today] would probably create less risk for financial markets than another extension of several weeks. The main risk around the funding deadline is that it could eventually interact with the debt limit, which will need to be raised in March, we estimate. By resolving the DACA issue in the near term, this would reduce the risk that the issue comes back into play around the much more important debt limit deadline. Unlike government shutdowns, which financial markets tend to shrug off, markets could have a stronger negative reaction if the upcoming debt limit increase became entangled in the current set of issues.
  • Economic data releases could be delayed due to a shutdown. In the event of a shutdown, we would expect most economic data releases from federal agencies to be delayed. Next week, this would likely include the reports on the trade balance, wholesale inventories, and new home sales (Jan. 25), and durable goods and Q4 GDP (Jan. 26). In the prior shutdown, jobless claims data continued to be released as the data is reported by state agencies and simply consolidated at the federal level. The Richmond Fed manufacturing survey (Jan. 23), the FHFA House Price Index (Jan. 24), and the Kansas City Fed survey (Jan. 25) should be reported on schedule, as neither the FHFA nor the Fed rely on congressional appropriations. Private-sector surveys, such as the Markit PMI (Jan. 24) and NAR existing home sales (Jan. 24) would be unaffected.
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10 thoughts on “Here’s What Wall Street Thinks About The Government Shutdown

  1. Note on the list of shutdowns that none started later than December. This one is in mid January, and if the rumors are true we could get a chance of another one in Feb. That would be 4 months after the government was supposed to be funded. What does that tell you about the ability to deal with the debt limit a month from then. And the debt limit does matter to the markets.

  2. It will always be like this with trump — think back to Feb, July and September 2017 and his comments and fights over healthcare! “It’s an unbelievably complex subject. Nobody knew that health care could be so complicated.”

    Google that sentence and read all the posts from MSNBC, CNN, Politico, Guardian, NBC, WaPo, Newsweek, Washtington Times, NYMagazine, Vox (not Fox!) and btw, not any posts on this subject by Fox….gee, wonder why? Just change the subject matter and it’s still the same bullshit.

    Here’s the ONE TRUTH — Trump is an idiot. He is a know-nothing schoolyard bully that was allowed to grow up into an adult bully – uneducated, untrained, unacceptable in society. Send him back to his whores and clean up the stink he leaves behind in the WH and do it NOW.

  3. In our family business, any employee missing three days work without a valid excuse was automatically terminated. Sounds good to me. Here’s another thought, starting at the moment of shutdown every one in the White House and in Congress, including all their aides and staff is on unpaid leave. Moreover, since we citizens can’t get those lost hours back, they don’t get their pay back. I like the first approach better. Actually, I’d like to see all these bozos laid off for the rest of the year. They can spend the down time reading the US Code since none of them ever has and none has any idea what the existing law they’re messing with actually is. Also, best cure: nobody in office on this day can run in the next election. That might be really interesting.

    • “The government isn’t working.”

      For Republicans having a shutdown means government is working, as they have been trying to close down the Departments of Education, Labor and Energy forever, as well as the IRS, EPA, and whole host of other government services. They prefer that government doesn’t work. So much of what they do is designed to cripple the operation of government by filling critical posts with unskilled personnel (i.e., hacks) or by not filling critical posts, or by underfunding departments, or gutting departments. They don’t want smaller government; they want to use government as an arm of the rich for their purposes.

      The reason they don’t want DACA kids here or people from shithole countries or why they work so hard suppressing the vote is because on the whole they are racists and bigots and perceive that such people end up voting for the democrats (I don’t understand why?). Since they are bereft of goodness and open hearts all they possess in their strategic playbook is to do harm to others.

      Let’s face it. In every population there will be a demographic that is anti-immigrant, anti-colored, anti-all-ancestries-but-theirs, and-everything-but-them. When those emotions and feelings rise to the top of the list for that demographic, there is nothing their elected leaders can do that’s wrong which will shake them from supporting the likes of Trump, Cotton, Perdue, and the rest of them. When I watch talking heads vent their frustration as to why Republicans don’t do anything about Trump racism, etc., I’m confounded by the l heads’ lack of recognition that many of those Republicans and their constituents share Trump’s views. Trump and the Republicans have given voice to the racism and bigotry that lives in America.

      It’s up to those who do not share those views to vote them out of control.

      It’s as simple as that.

  4. Both Republicans and Democrats in congress know that Trump is a waffling idiot. Democrats are happy to blame Trump; he’s an easy target and blaming him and the #ShitholeShutdown doesn’t hurt a deal they will have to cut with congressional Republicans. The heart of the problem is within congressional Republicans. Cotton, Purdue, King, Sanford, etc. don’t want legal immigration much less any DACA deal that can be called amnesty. Republicans are perfectly capable of putting legislation in front of Trump with little help from the white house. Just look at the carried interest loophole on the tax cut bill. Cohn, Short, and Trump wanted it gone. Republicans just laughed and went back to finishing the deal with various lobbyists, knowing Trump would sign whatever they put on his desk.

  5. Seems like it is one more step undermining our Democracy, thanks to trump’s russian ruler’s great plan. Get rid of trump and poof, problem solved — now vote the rest of those bastards out of office!

    I still send my thoughts via emails to my state leaders (? joke!) Cruz and Cornyn at least once a month, more often if they really piss me off! Take a minute, get your emails out regularly and show up at the polls!

  6. To be honest it’s probably better this way. The less the Trump Administration is active, the better off the USA will be. Take the drunk driver out of the driver’s seat, you know?

    • I understand your theory but it is not reasonable nor logical for our government to not be operating – too many necessary functions are missing in addition to people who are required to work are not being paid. Using your analogy, you have actually removed only the vehicle the drunk was driving.

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