Wall Street analysts disagreed on the government shutdown in the US. Some warned that it could be more painful for the economy and markets than in the past, carrying risks ranging from delays in the publication of macro statistics to the disruption of IPOs. Others, on the contrary, remain calm and say that the government shutdown will be short-lived and that historically it has had little impact on markets and the economy.

Details

- "While the shutdown was expected, the lack of progress and urgency in finding a solution has investors worried. The current situation is different from the 2018 shutdown, which was the longest in history," Jay Woods, chief market strategist at Freedom Capital Markets, said in a CNBC statement.

- The current shutdown could have a more noticeable impact on the economy than previous ones, added William Lee, chief economist at the Milken Institute. "Usually, shutdowns hardly affected the real economy at all because things quickly returned to normal after they were over. But now the situation is different - both sides are behaving more strategically," he said in an interview with CNBC. He said Republicans are using the moment to push their own changes, while Democrats see the shutdown as a chance to push through legislation they want. "It's more like chess than checkers today," Lee summarized.

- A government shutdown could shake up the labor market if federal agencies resort to mass layoffs, as Donald Trump has promised to do. "Headlines about potential layoffs related to the shutdown add an unlikely but strong risk that could trigger a rise in the unemployment rate," said Daniela Hathorn, senior market analyst at Capital.com, an online trading firm.

- Analysts at Jefferies also warned that the current shutdown could prove more protracted and painful for markets amid entrenched "political gridlock." It could delay drug approvals and the release of employment and inflation reports, leading to a "data vacuum" ahead of the Fed's October meeting, they said. A suspension of a regulator like the Food and Drug Administration (FDA) could lead to delays in approving new drugs, hitting biotech, pharma and financial firms. In the short term, analysts say the greatest volatility is expected in four segments: interest rate-sensitive sectors, regulatory-dependent industries, as well as defense and medical contractors and large health insurers.

- Analysts at JPMorgan predict the September jobs report and next week's release of the consumer price index will be delayed until after the government reopens. "The extended period during which the U.S. Bureau of Labor Statistics will not be fully operational could impact data collection for other reports, which could affect data quality," Anthony Saglimben, chief market strategist at Ameriprise, warned in a Reuters statement.

- The shutdown could also derail the IPO market's intended recovery. "The shutdown is effectively paralyzing the U.S. Securities and Exchange Commission (SEC): no prospectuses are being reviewed, no comments are being made, no clearance to go public," Michael Ashley Shulman, partner at Running Point Capital Advisors, told Reuters. - It's bureaucratic purgatory at the worst possible time - just when the IPO market is thawing after a long cold spell".

- Evercore ISI strategist Sarah Bianchi doesn't expect a prolonged shutdown as she hopes for progress in negotiations on a temporary funding bill. "Today, three Democratic senators voted in favor of the bill, offset by the vote of one Republican against. There are at least five other Democrats in the Senate who are skeptical of shutdowns and will not want the situation to drag on, especially if the threat of furloughs of federal employees becomes more real. Given this, and the fact that Republican leaders have already expressed a willingness to negotiate on health care, we believe the shutdown will be relatively short-lived," she said in a note quoted by CNBC.

- Bank of America analysts also believe the shutdown will be relatively short. "While it now appears that there is no path to a government shutdown, history shows that shutdowns tend to be short [...]. Unpaid wages, closed national parks and poor ratings could hasten the end of the shutdown," the BofA experts said in a note cited by CNBC.

- Judging by the current price movements, we think that the stock market is expecting a shorter shutdown," Citi experts added. According to them, limited turbulence is usually followed by a sharp recovery on the back of budget resolution. And optimism around AI and the Fed's soft policy, according to analysts, make a bullish trend reversal unlikely. At the same time, they recommend precious metals rather than the dollar as a defense in case of a prolonged shutdown.

This article was AI-translated and verified by a human editor

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