With no last-ditch truce reached, the lights of the US federal government flickered off last night for the first shutdown in seven years, leaving federal workers in the lurch and a slew of government operations on pause.
But what about the view from Wall Street? Historically, Wall Street tends to shrug off government shutdowns, as we wrote about earlier this week, but there’s more at stake for the economy this time around.
- For one, there are already indications this shutdown could be protracted given how dug in each side is. The longer a shutdown goes on, the less feasible it is for investors to plug their ears and sing la-la-la over the noise of political gridlock.
- Second, President Trump has threatened mass firings of federal workers should a shutdown occur, which could exacerbate the slowdown in the job market. Typically, federal workers are furloughed then brought back to work once a shutdown ends, stemming much of the economic damage.
Who loses most in a shutdown
One of the biggest disruptions could be in the IPO market, which was just coming back to life after a yearslong drought. When the Securities and Exchange Commission is largely closed for business, no private companies can get the green light to hit the public markets or file a mountain of paperwork before going on a road show.
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While companies at the stage of pricing their IPOs will likely still be able to move forward, others stuck in the pipeline are going to remain in limbo.
And what about companies that are already public? Jefferies analysts pointed to four sectors that could be jolted by a longer shutdown: interest rate-sensitive sectors, regulatory-dependent sectors, companies tied to government contracts, and managed care, according to Barron’s.
“With no full-year defense bill in sight, prolonged uncertainty could sap momentum from this year's [defense] rally,” explained Gabelli Funds Portfolio Manager Tony Bancroft in a note. But that could also create an entry point for those bullish on the sector long-term, he argued.
Another group of companies bracing for a hit are fast casual chains with large presences in DC, including slopbowl giants Sweetgreen, Cava, and Shake Shack, which rely on the bustling government ecosystem for customers.
And who might win?
One asset shining amid the chaos is gold, which hit another record high today. The precious metal has shaped up to be one of the best performing commodities of the year as traders have flocked to the safe haven amid, well, everything going on. Gold has soared 47% this year, putting it on track for its best annual performance since 1979. Silver, too, has climbed even more: 63%.
Talk about a silver lining.—LB