Government Shutdown Risks Economic Slowdown, Says Raymond James CIO Larry Adam

Government Shutdown Impact on Economy

• ⚠️ The longer the government shutdown stays in place, the greater the downside risk to the economy.
• 📉 Current economic expectations prior to the shutdown indicated a weakening economy, with growth near 0 to 0.5% this quarter.
• 📉 A prolonged shutdown could further weaken economic growth.

Market Pullbacks and Investor Opportunities

• 📈 Markets have seen very shallow pullbacks recently, with the largest drawdown under 3% since April.
• 🎯 A normal pullback is expected to be in the 5 to 10% range.
• 📊 This pullback would still keep markets above the 200-day moving average, maintaining an upward trend.
• ⚠️ Potential negative impacts on earnings, particularly for goods-producing companies, could lead to weaker spending.
• 🛍️ A proprietary survey indicates 88% of respondents plan to spend the same or less this holiday shopping season.

Tech Sector Performance and Rotation

• 📉 A larger sell-off in MAG7 tech, media, and telecom mega-cap names is attributed to their significant upside since April and higher beta.
• 💡 Despite recent pullbacks, the best fundamentals are still believed to be in mega-cap tech names.
• 📊 Earnings for these companies doubled (17%) compared to the rest of the market (8%) this quarter.
• 🚀 For the fourth quarter, mega-cap tech stocks are expected to see 19% earnings growth, compared to 3% for the rest of the market.
• ⏳ A rotation into value-oriented or defensive sectors is expected to be delayed until a more sustainable increase in earnings is seen for the broader market.