On Tuesday, October 1, the U.S. government shut down for the first time in 17 years. Many feared that the shutdown would immediately have a negative impact on the economy, though so far the stock market appears to be in good shape. Near the end of the day on Tuesday, the S & P 500 was up 0.57%, while Dow Jones was up around 0.25% and Nasdaq up almost a full percent. Though the future remains to be seen, that’s good news for those who thought people would immediately lose faith in the market.
The Precedent is Good
Analysts speculate one reason the market didn’t crash is that last time there was a government shutdown, it didn’t have much of an impact on the economy. Really, the shutdown does not directly impact most privately employed citizens. People can still do most of the things they would do on a daily basis; for example, they can still go shopping and buy a raccoon trap, or go to the movies after work. When the government shut down for 21 days in 1995, the S & P 500 actually rose about 0.1%.
It is true that the circumstances surrounding the shutdown were very different 17 years ago. The timing of this shutdown is less than ideal, since it occurs just as people are beginning to have renewed faith in the economy. However, the growth of the economy is all about speculation, and precedent can make all the difference in how people predict outcomes.
The Global Market Was Nonplussed
Understandably, many are concerned not only with the effect the shutdown would have on the U.S. economy, but also on the global market. In many ways, the U.S. market is a benchmark for the rest of the world — often if the U.S. economy is doing well, the global economy will be too, and vice versa. A crippled United States could have dire consequences for the rest of the world. Fortunately, global trading was going strong during day one. Trading in China and Hong Kong was closed for a national holiday, but most other major world markets turned a profit.
Singapore’s Straits Times was up around 0.4 %, while the markets in Taiwan and South Korea were up by 0.1%. Australia’s indices were down by about 0.2%, but this is believed to have been caused the country’s decision not to change benchmark interest rates. Europe also had a strong trading day on Tuesday. Although London’s FTSE 100 London was down 0.2 %, the Euro Stoxx 50 index was up around 1.2% at the end of the day.
The Future Is Uncertain
If the shutdown does not come to a stop soon, there could be dire consequences for the U.S. and the world at large. The U.S. treasury estimates it will not be able to issue any new bonds after October 17 if the spending limit is not lifted. Should this occur, the United States could default on its national debt. This has never happened before, so it’s difficult to predict exactly how that could affect the country, but an event that big could be catastrophic to the global economy.