The Week in Review: October 2, 2023
Government Shutdowns and Stock Market Performance
Government shutdowns make for good political drama. Nonessential workers are furloughed, travel plans to national parks could be interrupted, and some services are limited. A shutdown also increases investor anxiety.
But should sentiment take a beating? Historically, the short answer has been no.
According to CNN Business, shutdowns have lasted roughly a week on average. The most recent one stretched over 34 days.
While there is a disruption in some government services, the longer-term impact on the economy is almost zero.
When the shutdown ends, government workers receive backpay, and government contract work resumes.
If a shutdown has virtually no impact on the economy, it stands to reason that it would probably have little medium- and longer-term impact on stocks. As the graphic above highlights, the short-term effect has historically been minimal.
That’s not to say that we might not see some short-term volatility, as we saw last week. Some of that was likely tied to short-term traders taking a more cautious approach.
Any extended shutdown would also lead to a delay in some economic reports amid worker furloughs.
In addition, a shutdown might reduce the odds of a November rate increase as the view of the economy is muddied.
However, this eventually plays out (an agreement could limit, delay, or prevent a shutdown), and the historical data suggests that investors with a long-term view should not let short-term uncertainties affect their investment strategy.
The deadline to avoid a shutdown is October 1.
Market Summary
TWO FOR THE ROAD
From 2021 to now, investments in Artificial intelligence totaled nearly $94 billion. If AI continues this growth trajectory, it could add 1% to the U.S. GDP by 2030.-Forbes, March 31, 2023
“By the time you’re 80 years old, you’ve learned everything. Only now you have to remember it.” - George Burns
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