The U.S. is just days from a federal government shutdown at 12:01 a.m. ET on Sunday. If history repeats itself, the lapse in funding could actually set the stock market up for short-term gains. As of Thursday afternoon, lawmakers on Capitol Hill remained at an impasse over a budget resolution to keep federal agencies running beyond the end of the government’s fiscal year on Saturday. While there would be major disruptions if Congress fails to reach at least a temporary agreement in time, stocks have typically gone up when the government shuts down. The S & P 500 has gained an average of 4.4% around government closures, according to Morgan Stanley , with the caveat that other macro factors could have also played a role. Raymond James found that during the five government shutdowns since 1995, the broad market index has advanced an average of 3.2%. “Markets are largely unaffected in the lead up to a shutdown, and on average continue to rise in the 30 days following the resolution of a shutdown,” Raymond James analyst Ed Mills wrote in a recent note . Jim Cramer said this week that a potential government shutdown, coupled with the escalating United Auto Workers’ strike against General Motors (GM), Chrysler-parent Stellantis (STLA) and Club name Ford (F), would “take out a big chunk of economic activity.” As a result, he posits, the Federal Reserve might be able to ease up on its inflation-fighting monetary tightening campaign, which could boost stock prices as bond yields fall. The Fed has hiked short-term interest rates 11 times since March 2022, bringing the fed funds overnight bank lending rate to a 22-year high, in an effort to beat inflation. While the Fed left its benchmark interest rate unchanged at its recent September meeting, Chairman Jerome Powell said prices still need to come down. Central bankers signaled one more rate increase this year and fewer cuts next year, indicating the cost of borrowing money may be higher for longer. What is a government…
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