By Joyce Yu
Philadelphia, PA–Wall Street drifted marginally lower on Monday as the U.S. government shutdown enters its third day. History shows any pullback in stocks markets after a government shutdown is mild and often short-lived.
Kensho analysis showed that the S&P 500 sled an average of 0.3% one week after the government shut its doors in the past, while the average one-month return after a shutdown for the S&P 500 was of 2.1%.
This time, a point of contention between Republicans and Democrats is an immigration bill that Democrats want to pass. On Sunday, Republican lawmakers were getting behind a plan that would keep the government funded through Feb. 8.
This is the first government shutdown since 2013. During the longest shutdown on record in late 1995 and early 1996 when the government shut down for 21 days, the S&P 500 was essentially unchanged. In the most recent government shut down in 2013, stocks rose.
“Anyone with capital markets experience knows that US government shutdowns are largely meaningless in the context of financial asset values,” Nicholas Colas, co-founder of DataTrek Research shared with CNBC. “Getting sucked into a series of seemingly ominous headlines that smarter players already understand is a typical rookie trading mistake.”
It cost $20 billion in the 16-day shutdown in 2013, the costliest shutdown in the nation’s history, according to an estimate from Moody’s Analytics. U.S. GDP was slashed by 0.3 percentage points as a result, according to official government figures.
Any impact today’s shutdown may cause is not going to be as severe as in the 2013 as the economy is much stronger than it was back then. “It’s a hit, but it’s digestable hit,” Mark Zandi, chief economist for Moody’s Analytics told CNN. “The economy is so strong right now, it’d take a lot to derail it.”
Federal government spending adds more than $1 trillion a year to the U.S. economy. But most of that money will eventually be spent despite government shut down with less spending just from federal employees and contractors. Tourism business such as hotels and other businesses near national parks will likely feel the shock.
“The dollars and cents of federal spending matter, but [the problem] was really the impact on confidence due to the uncertainty,” said Zandi.
