US Government Shutdown: Likelihood, Market Impact, and Sector Performance

Likelihood of Government Shutdown

• 📌 The U.S. government is 'more likely than not' to shut down, with little movement observed between the two parties.
• ⚠️ Both Republicans and Democrats believe shutting down the government benefits them politically, with Republicans expecting Democrats to be blamed and vice versa.
• 🤝 A potential way to avoid a shutdown could be a short-term extension to allow for further negotiations, though this is not currently favored.

Blame and Political Playbook

• 🎯 Historically, the party that initiates a shutdown receives the blame and gains nothing from the action.
• 📊 A past shutdown saw 90% of Americans blaming Republicans, leading to a swift reopening of the government.
• 🏛️ This potential shutdown could be different as it might be driven by Democrats, a scenario not seen in the last five shutdowns.

Market Impact of Shutdowns

• 📈 On average, the S&P 500 has risen 3.2% during government shutdowns, with small caps showing similar performance.
• ⚠️ While shutdowns create headline risk, they are seen as an event to 'buy the shutdown' from a market perspective.
• 📉 The 10-year Treasury yield has on average sold off by 11 basis points during shutdowns.

Sector Performance During Shutdowns

• 💡 Analysis of five shutdowns since 1995 shows that market performance varies.
• ⚙️ Technology sectors initially benefit but may see reversals, while financials and utilities tend to perform well coming out of a shutdown period.
• 📊 Raymond James analyzes market and sector performance in the weeks leading up to, during, and after shutdowns to understand the actual impact, countering potential negative perceptions from Washington D.C.