WEEKLY PERSPECTIVE ON CURRENT MARKET SENTIMENT
Shutdown? Hardly.
January 24, 2018
Scott Wren Senior Global Equity Strategist
Key takeaways
Last Week’s S&P 500 Index: +0.9%
» This budgetary impasse came to a conclusion quicker than we expected, but we may very well revisit the issue in early February.
» The stock market has been confident that any government “shutdown” would be quickly brought to a conclusion.
4:10 a.m. PT, January 22: At this early hour on Monday morning, after a weekend of political posturing on both sides of the aisle, it appears the global financial markets are looking at the U.S. government “shutdown” as a big yawner. S&P 500 futures are barely changed at this point, and most international stock markets closed higher in overnight trading. This is in line with history. One of the financial networks is reporting that the median stock market performance during the previous 12 shutdowns since 1980 was, quote, “zero.” In other words, pay attention to the fundamentals, not the politics. And why not? After all, at least in this strategist’s eyes, the government looks to be largely up and running. The military will still be protecting the country (but not getting paid); the Transportation Security Administration (TSA) will still be making air travel safe; food inspections will continue; the mail will get delivered; and all social progam payments will be made. We doubt there will be protests in the streets due to lack of access to government sites and/or services. Granted, you can’t visit the Smithsonian museums, and some of our national parks will offer limited access, but for the most part, we citizens will be unaffected by the lack of budgetary agreement between our elected officials. The financial markets are clearly anticipating that the budget impasse will be resolved in short order. And the markets are almost certainly right. Yes, the “budget can” will only get “kicked down the road” for a short period of time—likely for just two or three weeks at most. There will be a CR (or “continuing resolution”) eventually approved by Congress and signed by the president. Then we get to do this all over again. It has a similar feel to recurring debt-ceiling “scares” when some in the media regularly discuss an armageddon scenario where the U.S. defaults on its sovereign debt. In those instances, we have strongly stated that “the U.S. is not going to default on its debt.” Not exactly a bold statement but one that we always need to make in answer to the many questions received in those instances. 2:30 p.m. PT, January 22, UPDATE: Not surprisingly, but maybe slightly quicker than this strategist expected, the Senate voted by a wide margin to pass a CR to fund the government until February 8. We are now waiting for the House to vote again on this CR. The House vote is merely a formality. While many of our elected officials keep talking about not agreeing with the concept of funding government operations this way, most still go along with the process and the legislation. It appears this latest “shutdown” is quickly coming to an end. But, as mentioned, we will revisit this process again in a couple of weeks. It appears this agreement in Congress is built on the promise of addressing immigration issues between now and early February. 5:00 p.m. PT, January 22, UPDATE: Back to Washington reality. As far as the stock market and the economy, we see little meaningful effect unless any future partial shutdown carries on for longer than a few weeks. We recommend focusing on the fundamentals and not the shenanigans in our nation’s capital as we approach the “new” budgetary deadline.
© 2018 Wells Fargo Investment Institute. All rights reserved.
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© 2018 Wells Fargo Investment Institute. All rights reserved.
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