Despite the ongoing Government Shut down, the Dow Jones Industrial Average and other stock market indices have provided the best ever start to the year since 2006 with respect to the first seven sessions of trading.
As the government has closed down various offices, around 800,000 workers were off-duty on this Friday. The current shut down is the longest in the history with no respite seen in the near future. Such shut down is now costing the US around $1.2 billion in GDP every week. But it seems like the investors are completely turning a blind eye to the mounting crisis on the Government and its workers, with the market continuing its bull trend and the Dow, S&P 500, and Nasdaq registering its biggest gain of first seven sessions of trading since 2006.
Though Dow Jones closed marginally down on Friday, ending just 0.2% down, the rally continues with the markets gaining around 7% over the week. LNG Economists tweeted “ Stock market up 7% during this shutdown is the best shutdown performance EVER.”
Market shut down has never caused trouble to the market in decades. They are always ignorant of such events. Further, the observation made by LPL Research firm with respect to the equities markets before the 2017 shutdown gave surprising results.
As per the opinion of the market strategist at LPL, Ryan Detrick, “Although a government shutdown sounds scary, the reality is it has been a non-event historically for equities. Going back nearly 40 years, the median return during shutdowns has been exactly flat.”
On the situation, Michael Halloran, an analyst at Janney Investment Strategy Group stated last week that “Since 1976, there have been 19 partial government shutdowns ranging from 2-22 days. While economic activity was marginally weaker in the first month after a shutdown, it rebounded quickly in subsequent months. The stock market impact is also marginal with the S&P 500 Index typically flat during shutdowns.”. He further added “The last meaningful government shutdown occurred from October 1, 2013, until October 17, 2013. Over that timeframe, the stock market (as measured by the S&P 500 Index) was actually up 2.25%.”
The current shutdown is the longest till date. The chances are that the longer it continues, the market will continue to react longer in a positive manner. The coming week shall give a clear picture of the situation. The only biggest concern for the upcoming trading week could be the increasing cost to the government because of the shutdown and Trump’s reaction to the same.