What Happens To The Stock Market When the Government Shuts Down

This Week in the Stock Market & U.S. Government 2018: What Happens When the Government Shuts Down? Solar Panels & Washing Machines Tariffs? Predictions for Economic Growth in 2018 and 2019.

Government Shut Down:

This latest government shut down has been the 18th government shutdown since 1976. Stocks opened this week flat Monday morning but ticked higher as the news that the Senate reached a deal to reopen the government. During the previous 17 shutdowns, the stock market was unchanged during the majority of the duration of the shut downs. The median change for the S&P 500 during shutdown periods is actually zero.

This week, President Donald Trump signed a short-term spending bill to reopen the government and fund it until Feb. 9. Republican leaders promised Democrats that they’ll soon address immigration and other political issues. This week, economics Gregory Daco of Oxford Economics said the chances of a repeat performance of the government shutting down are 35% when this deal expires on Friday, February 9, 2018.

Energy and technology companies advanced Monday as U.S. stocks continued their bull run. High-dividend stocks were also up as bond yields held steady. Yields had climbed to their highest level in more than three years the previous week.

Overall, the government shut down had very little effect on the stock market and historically never has.  In fact, as of today Thursday, January 24th the S&P 500 rose 0.1% to 2839.25 today-its 13th record high-while the Dow Jones Industrial Average gained 140.67 points, or 0.5%, to 26,392.79, which is also a record. However, the Nasdaq Composite declined 0.1% to 7411.16. Despite the new highs, it was another day of selling into strength. This is a sign that the market has rallied into an extremely overbought condition and appears to be correcting in some degree. This can be a sideways resting period for the market.

Tariffs:

The other major news that hit this week was the Trump tariffs on solar panels and washing machines that could raise prices. Trump approved recommendations by the U.S. Trade Representative to impose tariffs of up to 50% on imported large washing machines and parts, and up to 30% on solar panels. The tax on washing machines decreases and then expires after three years, while the duty on solar cells and modules phases out after four years. The solar industry has been booming as system prices have become more competitive with standard electricity prices. U.S. Republican Senator John McCain of Arizona, a big solar power producing state, said in a Twitter post that the tariffs amount to “nothing more than a tax on consumers.”

U.S. Economy:

As the U.S. economy continues to change, the International Monetary Fund just upgraded its prediction for world economic growth in 2018 and 2019, saying “U.S. tax policy changes are expected to stimulate activity” both in the U.S. and its trading partners, at least over the next couple of years. Even so, the IMF isn’t predicting warp speed growth. Instead it raised it U.S. forecast from 2.3 percent to 2.7 percent in 2018, and from 1.9 percent to 2.5 percent in 2019. This leaves the U.S. economy far short of “fixed.” However, Rising deficits and higher interest rates, due in part to those very same tax cuts, may well offset the longer-term impact of the fiscal stimulus.

Stay tuned for more market and economy news from the iFlip blog as the world (and stock market) turns!

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