Investors worried about whether a looming government shutdown could slow U.S. stocks’ recent surge can take comfort in history.
According to the Congressional Budget Office, the most recent shutdown, which lasted for five weeks, shaved 0.1% and 0.2% from real U.S. gross domestic product in the fourth quarter of 2018 and the first quarter of 2019, respectively.
The S&P 500 and Nasdaq composite indexes touched yesterday all-time highs as investors looked past bleak economic data, while remaining focused on a COVID-19 vaccine.
The managing partner for Harris Financial Group, Jamie Cox said, “Markets understand that artificial deadlines created by governments got designed as negotiating tools. It is nothing more than a pause, and most of the time it’s resolved in very short order”.
With the economy reeling from COVID-19 and high unemployment, the portfolio manager for Amundi Pioneer Asset Management in Boston, Paresh Upadhyaya said, “there will be tremendous political pressure to hammer out a deal”.
So far, the threat of a sharp slowdown in government spending has done little to dull investors’ appetite for stocks, given the breakthroughs in a vaccine against COVID-19, hopes for more stimulus and a wave of stronger-than-expected corporate earnings.
Upadhyaya added that, “The market’s expectation is that we have seen this movie so many times and it always has a happy ending”.