Investors were able to find some relief on Friday as the government shutdown ended. Although funding to reopen the government is only temporary, it was initially believed that lawmakers would work to prevent another shutdown from occurring when current funding runs out on February 15th.
However, President Trump’s Sunday interview with the Wall Street Journal cast doubt on current negotiations, leading to a Monday slide which could continue into the rest of this week. The Dow Jones fell -0.84% at the close on Monday, and the S&P 500 declined -0.78%.
Investors Don’t Want to See Another Shutdown
While investors largely ignored the 2018/2019 shutdown for most of its duration, they will be less likely to do so if the government closes again in February. The recent shutdown became the longest in history by a significant margin. When it ended on Friday, it was in its 35th day.
It was also the most expensive on record and will shave off some of the GDP gains expected for the first quarter.
According to a report released by the nonpartisan Congressional Budget Office (CBO) on Monday, the shutdown cost the economy $11 billion. $3 billion of that won’t be recoverable. With real figures to look at, investors now see just how precarious of a position the government has put them in.
Economic growth is already slowing from its peak. Any added pressure from a new government shutdown would leave investors worried about future performance.
Shutdowns take money out of local economies as services are underutilized, federal employees stop spending (which harms GDP), and businesses lose access to federal loans and support. These factors combine to create some serious economic headwinds.
Trump Not Confident That Lawmakers Will Reach a Funding Deal
President Trump told the Wall Street Journal that he believes the chance of Democrats and Republicans striking a deal is less than 50:50. While a shutdown is definitely an option, the President could also fall back on an Emergency Declaration to get the $5.7 billion he needs for his border wall project.
Earnings season is now in full swing, and underperforming stocks could combine with political uncertainty to create volatility in the market. Investors are advised to watch the news closely, make rational decisions based on available data, and avoid drastic portfolio changes without first consulting a financial advisor.
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