Investors had to see this one coming.
It is no surprise that one year into the Trump administration the government shuts down.
At this point, investors aren’t even flinching.
Investors showed little concern that the world’s largest economy may stumble. In fact, U.S. stocks jumped to a record close Friday even as the impasse deepened in Washington.
Unless the deadlock persists, the impact will have a hard time rattling markets that have been focused on benefits from the recently passed tax overhaul, improving corporate profitability and synchronised global economic growth.
What this shows is the desensitization of investors.
And why not?
In 18 shutdowns over the past 42 years, the median return of the S&P 500 has been 0%
Although a government shutdown sounds scary, the reality is it has been a non-event historically for equities.
Fixed income likewise shrugged off the issue, with 10-year yields adding just five basis points during that span.
The shutdown comes with equity markets surging around the world. The S&P 500 just capped its third straight weekly advance, to post the best start since 1987.
Earnings optimism fueled partly by President Donald Trump’s tax overhaul has led to one of the most significant upward revisions to profit forecasts on record.
Global stock funds have taken in $58 billion over the last four weeks, the most ever recorded.
The risks to the economy and financial markets are somewhat higher in February than they are this month, due to the upcoming debt limit deadline.
Markets have tended to shrug off shutdowns as long as the debt limit is not involved.
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