Government shutdowns make for stirring headlines, but usually only for a few days. The history is pretty clear: The government doesn’t remain shut for long and usually one side or both sides cave on whatever the issues of the day are. If anything, government shutdowns are a pitiful exercise of both sides blaming each other and then, within a few weeks, it’s all forgotten.
That is not to belittle the impact a government shutdown has on a myriad of people relying on certain government functions and employees who do not get paid during a shutdown. It’s an emotional pony show at its worst.
How does it impact markets? History suggests it’s a mixed bag, although the last 3 shutdowns have seen no downside in markets. Numerous data sets have been shared on twitter and here is one of them:
In the age of complacency perhaps then this time will be no different.
Looking at the data in context however I offer 2 observations:
A. This is the first government shutdown with only one party controlling the White House, House & Senate since 1979. During the Carter years we saw 5 shutdowns while Democrats had full control. 4 of these had negative market reactions during these shutdowns. Since 1979 every government shutdown involved mixed control between the 2 parties. So this shutdown in 2018 has perhaps a different dynamic.
B. There has never been a government shutdown with markets this technically stretched and overbought:
For further reference I’ve highlighted additional chart dynamics and technical implications in Weekend Charts.
Based on these 2 observations above then perhaps past shutdown data may have little predictive value other than perhaps the length of the shutdown. History suggests between 1 and 21 days.