House Speaker Kevin McCarthy Friday was still seeking votes for a short-term spending bill that would buy the government some time as it faces the task of approving 12 spending bills for the upcoming fiscal year. A deadline to avoid a government shutdown strikes at midnight Saturday.
The Dow Jones gave back early gains on Friday as the stopgap measure was set to go to a vote.
The stock market remains in a correction, and the threat of a federal government shutdown is another risk for it. One of the main impacts is that federal agencies would delay economic reports.
Friday's personal income and outlays report by the Bureau of Economic Analysis was released ahead of the deadline and showed inflation cooling. But if other economic data is delayed, a shutdown could throw a curveball in the data-dependent Fed's path.
The stock market has had varying reactions to shutdowns in the past.
According to Dow Jones Market Data, out of the 10 shutdowns that lasted more than five days since 1976, the S&P 500 rose during five and fell during five.
During the most recent shutdown, in 2019, the S&P gained 10.3%. Small caps were the biggest gainers but all sectors except utilities rose during the 34 days of the shutdown.
Jeffrey Buchbinder, chief equity strategist for LPL Financial, says a government shutdown means a suspension of services that are not essential. Essential services such as border security, in-hospital care, air traffic control, law enforcement and grid maintenance would continue.
What Government Shutdown Would Impact Most
A shutdown leaves other services such as the U.S. Postal Service, Social Security and Medicare unaffected. These do not come under Congress' annual funding bill plans. However, disaster relief funds come under the government's annual allotment plan.
Congress can avoid a shutdown and buy some time through a continuing resolution (CR) if any of the bill fails to pass. The most recent use of a continuing resolution was in 2011, when the entire year was funded through several CRs, Buchbinder said in a report.
Shutdowns do not imply that the government has defaulted on its bills. A government default would have a much greater effect on markets. The U. S. government is very far from defaulting on its payments.
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