Author Topic: What effect do people think a government shutdown could have on the market?  (Read 5252 times)

leebuckeye

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With tax reform passed earnings are expected to be strong and most are predicting the S&P 500 to rise 5-10% this year.
If the government shuts down though that could derail the market quite significantly, as spending dries up.
Are people doing anything about this(i.e moving 401k to cash/selling stocks) before Friday?


Retire-Canada

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Are people doing anything about this(i.e moving 401k to cash/selling stocks) before Friday?

No. I don't try and time the market.

secondcor521

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Nope.  I predict zero effect on the market.

Why?

Well, we'd have to have a shutdown in the first place.  My guess is we'll see a continuing resolution which kicks the can down the road a month or six weeks.  So I doubt we're even going to have a shutdown this weekend.

Secondly, we've had them before.  They're getting to be old hat.  I don't ever recall any shutdown being blamed for any market downturn.

Third, government spending is only about 20% of all economic activity.  The private sector is the vast majority of spending.

Fourth, even when the government shuts down, only parts of it shut down.  The military, Social Security, and the IRS will all be at work.  I believe they close the National Parks, which is an inconvenience if you were planning to go there.  But IIRC it is about 70% of the government remains open during a so-called shut down.

Could the market coincidentally drop any time now and will the media blame the shutdown?  Possibly, if they don't blame North Korea or swear words or increasing energy or the spectre of inflation or the fact that it is Wednesday tomorrow.  It is required that the media identify some cause when the market drops, even if that is not the real reason.

Because the market could drop, I have my asset allocation set the way I want it and I am rebalancing to that on a regular basis.  That's all I do.

Mighty-Dollar

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No effect. Less government is good even if it's for a few days. Also it's a good thing that the Republicans are fighting ILLEGAL immigration and all that they take from free services at tax payer expense. Democrats will lose votes in swing states because of this. Less democrats is good for the economy.

harvestbook

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Also it's a good thing that the Republicans are fighting ILLEGAL immigration and all that they take from free services at tax payer expense.

Pretty much the exact opposite happens-- they pay income/sales taxes and are LESS likely to use the services than your average poor Red State white person, but keep investing your politics.

Car Jack

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My observations from past government shutdowns:

- Traffic is reduced

- Entrance to the Grand Canyon was free

That is the total of all observations I've had. 

bacchi

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My observations from past government shutdowns:

- Traffic is reduced

- Entrance to the Grand Canyon was free

That is the total of all observations I've had.

The last 2 times there was a shutdown, I was on vacation. It did suck greatly to plan a camping trip in a national park and have the park be closed.

Though I recall that Arizona ponied up money to keep the GC open because of the international tourists.

BTDretire

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At the end of 2012 just before the government shut down, I sold $161k of VTSAX and it was two years before I
got back in. It cost me $71k.
It's time in the market not timing the market.

OurTown

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Shutdown won't amount to a hill of beans.  An actual debt default would be another matter.

secondcor521

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Nope.  I predict zero effect on the market.

...

Because the market could drop, I have my asset allocation set the way I want it and I am rebalancing to that on a regular basis.  That's all I do.

What I meant to say, of course, is zero negative effect on the market.

We are two days away from a potential government shutdown, and at the moment the Dow is up over 300 points and about 11 minutes away from closing over 26K for the first time in history.

infogoon

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My observations from past government shutdowns:

- Traffic is reduced

- Entrance to the Grand Canyon was free

That is the total of all observations I've had.

As I recall from the Gingrich-led shutdown of the 90s, the terrestrial radio stations start playing the explicit version of songs because the FCC isn't enforcing anything.

DS

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Effect? Where do we begin? Mass disruption and chaos. All markets down to 0. No one will know how to function. All hope will be lost. This is just the beginning.

Retire-Canada

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Effect? Where do we begin? Mass disruption and chaos. All markets down to 0. No one will know how to function. All hope will be lost. This is just the beginning.

Top is in?

sol

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I will be sent home without pay, which means no more ongoing investments for the duration.  Up, down, almost doesn't matter.  What matters is that it will force me to stop the DCA gravy train, which by definition means I'll lose out on time in the market.

My prediction: it will spike right after my next paycheck fails to arrive.  If I then get paid retroactively, it will nosedive right after I lump sum the back pay into the market.
« Last Edit: January 17, 2018, 02:42:08 PM by sol »

Fomerly known as something

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I will be sent home without pay, which means no more ongoing investments for the duration.  Up, down, almost doesn't matter.  What matters is that it will force me to stop the DCA gravy train, which by definition means I'll lose out on time in the market.

My prediction: it will spike right after my next paycheck fails to arrive.  If I then get paid retroactively, it will nosedive right after I lump sum the back pay into the market.

I will be very grumpy at work.  Because while I am going to work I will be working for an IOU sometime.

As to the market, there maybe a we are not happy that this happened temporary drop but nothing major.

Fomerly known as something

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I will be sent home without pay, which means no more ongoing investments for the duration.  Up, down, almost doesn't matter.  What matters is that it will force me to stop the DCA gravy train, which by definition means I'll lose out on time in the market.

My prediction: it will spike right after my next paycheck fails to arrive.  If I then get paid retroactively, it will nosedive right after I lump sum the back pay into the market.

I will be very grumpy at work.  Because while I am going to work I will be working for an IOU sometime.  Meaning I get to come into work without pay.

As to the market, there maybe a we are not happy that this happened temporary drop but nothing major.

ixtap

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Traditionally, sometimes the market goes down, sometimes it goes up, with a median change of 0% and the mean being slightly negative.

BTDretire

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I listen to an Internet radio station called Science 360, last time the government shut down they stopped streaming the channel.
 I think it kinda sucks that people are put out of government jobs, but then get paid when the shutdown is over.
If they are going to get paid they should just continue working.
 Although since they are deemed non essential jobs...

sol

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Although since they are deemed non essential jobs...

In this case, "non-essential" means not immediately required for the protection life or property.  They are jobs the country needs, but that don't cause predictable and immediate death  and destruction when no one is covering for a few days. 

And I assure you, we would all prefer to keep working and getting paid for it.  In this case, the president is already talking about the perceived PR benefit of a government shutdown without any back pay, for a change.  He apparently thinks that will play well with the base.  You know, sticking it to those freeloaders.

montgomery212

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I work for the government and will be totally shocked in a good way if we get backpay at the end of this. I feel like this administration is dying to stick it to us freeloaders who supposedly do nothing. And yet at work -- I assure you that all of us WANT to keep working and keep getting paid; no one is thinking -- yay I get to sleep in.

Anyway, I think the shutdown will have some temporary market impacts as this market is looking for reasons to sell off. I don't think it'll be major or long lasting. I work for an agency that regulates the market (so clearly my job is totally dumb and I get paid for no reason according to some) -- and we need advance permission for absolutely any trade we want to make whether stock/bond/ETF etc. So all I'm planning to do before Friday is get approvals to trade a number of things (not sure what yet -- probably will keep it pretty boring with ETFs), so that if there is a shutdown and the market reacts, I can buy the dip instead of kicking myself for not having approvals upfront.

ILikeDividends

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Pulling out of  NAFTA will probably be worth a good swoon of 10% or so.

A failure to pass an increase of the debt limit would be met with a big yawn. It's political theater, and nothing more.

Villanelle

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I assume DH (military, and currently our only breadwinner) will continue to get paid like he did last time.  In the past, I rearranged a few things in advance so our cash reserves were slightly larger, just in case the pay check stopped coming.  It didn't, and I don't think it would play well for Trump's or the R's base to stop paying the military, so I am doubtful it will happen this time, either.

Which means everything will continue has it otherwise would, including our month DCA invest.  And I don't care what a shutdown may or may not temporarily do to the market because I'm not pulling money out any time soon. 


Fomerly known as something

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I assume DH (military, and currently our only breadwinner) will continue to get paid like he did last time.  In the past, I rearranged a few things in advance so our cash reserves were slightly larger, just in case the pay check stopped coming.  It didn't, and I don't think it would play well for Trump's or the R's base to stop paying the military, so I am doubtful it will happen this time, either.

Which means everything will continue has it otherwise would, including our month DCA invest.  And I don't care what a shutdown may or may not temporarily do to the market because I'm not pulling money out any time soon.

Maybe DH will get paid, maybe not.  He might end up like me an essential worker with an IOU.  I got paid, AFTER the government was funded again.  So last time I had one partial paycheck and I believe the budget was passed a couple of hours before the no paycheck deadline. 


thenextguy

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No effect. Less government is good even if it's for a few days. Also it's a good thing that the Republicans are fighting ILLEGAL immigration and all that they take from free services at tax payer expense. Democrats will lose votes in swing states because of this. Less democrats is good for the economy.

Republicans control the Presidency and both chambers of Congress, but somehow a shutdown is going to be Democrat's fault? Hilarious.

Retire-Canada

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Republicans control the Presidency and both chambers of Congress, but somehow a shutdown is going to be Democrat's fault? Hilarious.

Don't worry it's just #FAKEnews. ;)

sol

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Republicans control the Presidency and both chambers of Congress, but somehow a shutdown is going to be Democrat's fault? Hilarious.

In this case, I think congressional republicans have some political cover in the event of a shutdown, because they can blame the president.

Trump said he would sign whatever congress came up with.  They handed him a bipartisan compromise bill with a daca fix and new border security funding, and he shat on it.  He literally vetoed the compromise bill to keep government open.

Normally McConnell is pretty sensitive to the PR in these situations, and works to find a fix.  This time, I suspect he's more willing to let funding lapse because he thinks blame will fall on Trump instead of on congress.  Congress did their part, on both sides of the aisle.  Trump is the obstacle.

Which probably shouldn't surprise anyone.  Trump doesn't really seem to care about what's good for the country, he only cares about what plays well with his base and is therefore good for his ratings.  If he thinks his 25% support wants a shutdown, he'll give them one.

thenextguy

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Republicans control the Presidency and both chambers of Congress, but somehow a shutdown is going to be Democrat's fault? Hilarious.

In this case, I think congressional republicans have some political cover in the event of a shutdown, because they can blame the president.

Trump said he would sign whatever congress came up with.  They handed him a bipartisan compromise bill with a daca fix and new border security funding, and he shat on it.  He literally vetoed the compromise bill to keep government open.

Normally McConnell is pretty sensitive to the PR in these situations, and works to find a fix.  This time, I suspect he's more willing to let funding lapse because he thinks blame will fall on Trump instead of on congress.  Congress did their part, on both sides of the aisle.  Trump is the obstacle.

Which probably shouldn't surprise anyone.  Trump doesn't really seem to care about what's good for the country, he only cares about what plays well with his base and is therefore good for his ratings.  If he thinks his 25% support wants a shutdown, he'll give them one.

I'm not ready to let Republicans in Congress off the hook just yet. There probably are enough votes to override a Presidential veto if they wanted to work with Democrats (and by indications in the press that is the case). But they don't want to do that because they're afraid of going against Trump. So yes, Trump is to blame for now claiming he's going to veto something that he originally said he would sign. But Republicans could probably get this through if they really wanted to.
« Last Edit: January 18, 2018, 10:38:04 AM by thenextguy »

Travis

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If we have a shutdown (I believe this is our third can-kicking CR since the beginning of the FY) it'll only last a few days.  Market-wise that's not even a blip if it even registers.

DrF

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Funny thing about the internet...you think you have an original idea, but it turns out someone has already thought about it.

https://www.marketwatch.com/story/heres-how-the-stock-market-has-handled-past-government-shutdowns-2018-01-16

OurTown

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It looks like we are going to find out. 

DavidAnnArbor

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If the government shutdown lasts long enough, would those on Social Security fail to receive payment? or Medicare funding would not be disbursed to health care centers?

secondcor521

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If the government shutdown lasts long enough, would those on Social Security fail to receive payment? or Medicare funding would not be disbursed to health care centers?

Heard Mick Mulvaney (Director of OMB?) today state in a press conference that the administration plans to use contingency funds, reserves, and transfer authority to minimize the disruption of this shutdown as long as possible.  It sounded like they could easily go a month or two without any actual shutdown effect.

2Birds1Stone

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Don't know, don't care, stick to the plan.

dougules

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If you're worried about something short-term like this, you probably shouldn't have invested the money in the first place.  The market is for long-term money.  Even if we have a big government shut-down, it will probably be nothing more than a historical footnote in 10 years. 

BTDretire

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At the end of 2012 just before the government shut down, I sold $161k of VTSAX and it was two years before I
got back in. It cost me $71k.
It's time in the market not timing the market.

For me, I thought the world was going to end during the debt ceiling negotiations of 2011 and the fiscal cliff of 2012/13 .... I took a conservative stance.  Boy was I stupid and wrong.  I missed out on a lot of gains because I got scared.  Never again.

 I lost the $71k when I pulled the $162k out, but it was less than 15% of my NW at the time. But I still wish I had the $71k. :-)

Scandium

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No effect. Less government is good even if it's for a few days. Also it's a good thing that the Republicans are fighting ILLEGAL immigration and all that they take from free services at tax payer expense. Democrats will lose votes in swing states because of this. Less democrats is good for the economy.

You're so wrong!

It's fewer democrats, not "less"!
I'm a filthy (legal) immigrant and even I know that.

OurTown

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Well now we know.  It didn't last long and it had zero effect on the market.

Retire-Canada

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You're so wrong!

It's fewer democrats, not "less"!
I'm a filthy (legal) immigrant and even I know that.

This is why real 'muricans don't like immigrants. You study/learn and then use their own language against them. ;)

DavidAnnArbor

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Ha that's funny !!