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Unfazed by the Impending Shutdown? Here’s What the Stock Market Might Have in Store

As the U.S. government tiptoes on the brink of another shutdown due to a budget stalemate, worry might be the prevailing mood. Yet, astonishingly, stock market maestros are not breaking a sweat over the prospective closure. With Congress’s historical struggle to pass spending bills timely (the last successful attempt being in 1997), experts still maintain that investors could sail through unscathed.

With a looming shutdown, apprehensions about its impact on the market are understandably rife. Already, September is painting a grim picture, threatening the most substantial monthly losses since the year’s outset. A potential shutdown could further dent the market, reminiscent of the S&P 500’s 2.7% tumble on the first day of a previous shutdown.

Despite these alarming signals, the market’s resilient past during shutdowns offers a silver lining for investors. Analyzing past shutdown data reveals a relatively stable S&P 500, showcasing minor average losses and, at times, even closing the shutdown interval on a high note. The 2018-19 shutdown exemplifies this scenario, marking a 10% net market gain by its conclusion. Even shutdowns stretching beyond five days have historically witnessed swift market rebounds, reinvigorating investors’ confidence.

Although a government closure might not spell extensive market doom, analysts caution against the potential exacerbation of existing economic strains, including a dwindling labor market and surging interest rates. Additional burdens, like the resumption of student loan payments, threaten to strain the American consumer, possibly fuelling a downturn.

A prolonged shutdown carries the risk of eroding economic growth, chipping away at the quarterly GDP with each passing week, as estimated by Goldman Sachs. However, notwithstanding these possibilities, analysts like Truist co-chief investment officer Keith Lerner, view the shutdown as a minimal threat to the stock market. Lerner underscores the stock market’s current lack of “upside” catalysts as a more pressing concern.

In navigating these tumultuous times, Wells Fargo strategists extend a beacon of guidance. They encourage investors to overlook the short-term market turbulence connected to a potential shutdown and instead adopt a more defensive portfolio stance. This approach, they believe, is the key to weathering an economy on the cusp of an anticipated recession, ensuring that investors remain not just survivors but also strategic navigators of the stock market’s choppy waters.