No government, no problem.Getty Images
Stocks have edged higher this morning despite a government shutdown as moderate Republicans, ultra-conservative Republicans and Democrats try to work through their differences on a budget bill.
The S&P 500 has gained 0.5% to 1,690.23, while the Dow Jones Industrials have risen 0.3% to15,177.35 . The small-cap Russell 2000 has advanced 0.6% to 1,080.55.
So far, at least, investors appear to be reacting to the initial shutdown the way they have in the past–by ignoring it. JPMorgan’s Thomas Lee explains:
The median government shutdown (since 1976) is 4 days, with 17 such occurrences (this will be the 18th) since 1976 — the shortest was one day and the longest was 21 days.
Overall, markets have been down 0.2% from the start of a shutdown until the end, with the longer the shutdown, generally the worse that markets perform. Equities have fallen 0.2% during the shutdown period (median) but it seems that the longer the shutdown, the greater the decline…
This is intuitive as longer periods add uncertainty and put greater risk on economic outcomes… [For] shutdowns lasting 8 days or more, the range of returns during a shutdown is approximately flat to a -4.4% decline, and for those lasting less than a week, the range is +1.3% to -2.1%.
Mizuho’s Steven Ricchiuto says the impasse could extend to the debt ceiling drop-dead date. He writes:
The timing and composition of the eventual compromise are the big unknowns at this point. For the markets, the composition is less important than the timing. Our read of the current situation suggests a continuing resolution will be passed in time to keep the government from defaulting on its debt. The debt limit was originally expected to become binding in early November. Disappointing corporate and individual tax receipts, however, have narrowed this window to the middle of this month. This implies the shutdown could last as long as two weeks before a solution is found.
The U.S ISM manufacturing survey, meanwhile, was stronger than economists had expected. Miller Tabak’s Andrew Wilkinson explains: