As a government shutdown draws closer, many analysts are looking to past shutdowns for some guide as to what might happen â€" particularly in the markets. The precedent is not all that frightening, according to data put together by Joseph P. Quinlan, chief market strategist at U.S. Trust, Bank of America Private Wealth Management. The chart below shows how much the Standard & Poor’s 500-stock index moved from the beginning of the shutdown to the end. The last time it happened, in early 1996, the market actually ended up slightly.
“Because shutdowns typically break the prevailing climate of political gridlock, a market positive, investors typically look through closures and begin to price in less political risk,†Mr. Quinlan wrote.
This time around, though, there is an additional threat to the market, and that is the looming debt ceiling. Even if a government shutdown is averted, Congress still has to agree on a way to lift the government’s borrowing limit. If lawmakers don’t, there will be no precedent for how the markets will react.
