It may seem that the government is the most terrifying entity when talking about finances. With just a single subsidy, regulation or switch of printing press, it is enough to send shockwaves worldwide. Fact is, it can even bankrupt a company and an entire industry. It’s without a doubt that the impact it creates is something to be watched out for.
All of it happens with just a minute revision of law or regulation in the parliament. Because of this, there are tons of once established investors that considered legislative risk as a significant factor when assessing stocks. What appears to be a good investment might turn the other way when the government isn’t taken into account.
Does the Government Really have an Impact on the Stock Market?
Historically speaking, stock market has not cared much on what happens in the government, whether there’s a crisis or shutdowns. On average, the stocks are falling .4% on shutdown along with a zero of median return as per the LPL Financial analysis. This is partly because shutdowns have been common from the time when federal budgeting process was passed as law in 1976.
Believe it or not, for the past 4 decades, the stock market has already witnessed 20 government shutdowns. Even so with these shutdowns, they are often short and taking place over the weekend. Thus, giving the stock market and its stock holders like Gilbert plumbing enough time to recover from the downfall.
So far, the shutdowns recently have seen the stocks rising on strong corporate earnings and hoping an end to USA-China trade war.
Airline stocks, chip stocks and bank stocks all have been among the strongest and leading performers.
Are there Repercussions?
But the big question that puzzles traders and investors is, what would happen in stock market (assuming) if it shutdowns for two or three months? Well, this is going to hinge on how much the shutdown affects companies on broader economic depression.
In the event that you are expecting a collapse in the market, especially in how the current US president does negotiations, you may be disappointed. Several markets loathed this trade war with China. However, there is little public indication that the president softens his demand from the second biggest economy in the world.