How will a US government shutdown affect stock markets?

Author: Anna Timone | Category: News

While a US government shutdown is unlikely to go on for an extended period of time, financial analysts are of course following this turn of events quite closely. In the past, the stock market has successfully weathered government shutdowns. For example, during the government shutdown from Dec 15, 1995 to Jan 6, 1996, the S&P 500 actually rose 5 percent. Additionally, during the Nov 13-19 1995 government shutdown, the same index rose over 1.2 percent. However, as the S&P has been currently rising for some time and economic growth is not strong, this situation is not likely to occur this time.

As of last week, both the S&P 500 and the Dow index decreased over 1%. Moreover, since last Friday, the US dollar has also decreased in value compared to other major currencies and gold has, not surprisingly, increased in value. As a general feeling of uncertainty follows a government shutdown, both the US stock markets and the US dollar are expected to decrease in value following this event. That said, the stock markets are most likely to be affected during a US government closure. Moreover, the longer the shutdown, the more the stock markets will decrease in value. For example, if the government were to shut down for three weeks, one can expect a decrease of over 5%, whereas if the government shutdown lasts up to two days, the effect will not be as drastic.

That said, a government shutdown can also be seen as a possible buying opportunity for certain investors. Since stocks will most likely decrease in value, this situation can be a chance to buy certain stocks at a lower price.. Moreover, safe haven currencies such as the yen can also benefit from the decreased value of the US dollar.

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