Indices Red Ink and Fear of Government Shutdown

government shutdown

Improbably, the U.S. government seems poised to head for either a partial shutdown or something worse before Christmas over funding for a border wall that’s been on the president’s agenda from day one.

It wasn’t too long ago that the prospect of a government shutdown, even in part, sent markets tumbling – however, is it really that way any more? There has been a broad discounting of actual market results of temporary government shutdowns as in early this year, where some analysts downplayed the market impact of a pending shutdown.

“U.S. equity markets took the threat of a shutdown in stride last week, with the Dow Jones Industrial Average up 1%, the S&P 500 gaining 0.9%, and the Nasdaq Composite moving 1% higher,” wrote Davis Wismer at Seeking Alpha Jan. 25. “According to Barron’s, ‘The S&P 500 has now closed at a record level 10 times this month, just one short of the record of 11 set in January 1964-with eight trading days to go.’ … The financial media and many analysts continue to cite the overbought nature of the market and the inevitability of a pullback of some magnitude – but, as this week showed, ‘bad news’ is still being heavily discounted by the market. The focus remains on ‘synchronized global growth,’ the potential positive impact of the U.S. tax cuts, and a continued strong earnings picture.”

That was last time.

Now, Trump seems willing to interrupt some federal agencies in order to push for $5 billion to fund the border wall that he first said Mexico would pay for. Are the same mitigating factors still in place? One big issue is the Chinese trade war and current “truce” that is not really shoring up those same bullish sentiments on global trade.

Meanwhile, reports at MarketWatch show the federal government “closer to the brink” after negotiations have failed to find the president his border wall money. Democratic congressional leaders say they will not go more than around $1.6 billion for border funding and that it should be a broad-based package.

Even the Heritage Foundation, not known to second-guess the goals of the right-wing base, contends that a border wall is not really the way to fix immigration.

“A wall in a remote desert would barely slow down illegal immigrants,” wrote David Inserra, Policy Analyst for Homeland Security and Cyber Policy, Jan. 9. “It would only take them a few minutes to get over the wall, but after that it would take them hours to reach the nearest town or road—the proverbial speedbump in the desert. … Instead, our tax money would be better spent on technology or additional agents would could respond to and detect illegal crossings.”

But to a portion of the electorate who has been promised their wall, as a policy solution, over and  over, even critiques like this likely fall on deaf ears.

A White House that has been less than nuanced in its policy over the past two years is now standing firm on the idea that we need to build a physical barrier across the entire Mexican border.

“We will do whatever is necessary to build the border wall to stop this ongoing crisis of immigration,” said White House senior adviser Stephen Miller according to Associated Press reports.

So what’s the effect on markets?

If you look at the indices in trading today, the S&P 500 is down over a month, three months and six months, as well as year to year.

So is the Dow Jones industrial average to a lesser extent. With these indices already at relative lows, they may fall lower before any government shutdown or deal to prevent a government shutdown happens.