Both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) closed with strong gains on the first day of the government shutdown.
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The average government shutdown lasts for 8.2 days, although the most recent one in 2018 stretched for a record 35 days. The shortest federal closure lasted for just one day, while several others have lasted 2, 3, and 4 days.
Furthermore, the S&P 500 (SPX) tends to perform well after the government reopens, with an average three-month return of 2.6%, a six-month return of 7.5%, and a 12-month return of 12.7%, according to Carson Research and Edward Jones.
“Shutdowns happen. They can take a tad off GDP, but it comes back quickly,” said Carson Research chief market strategist Ryan Detrick in an X post. “Historically, stocks take shutdowns in stride.”
On Wednesday, the Senate failed to pass two funding bills that would reopen the government. The first bill was a Democrat-backed proposal that included Affordable Care Act subsidy extensions, while the second was a Republican stop-gap funding bill. Afterward, Vice President J.D. Vance warned that federal workers’ jobs could be at risk if the shutdown continues to drag on.
Both indexes brushed off a disappointing labor market data point from ADP. September’s private payrolls fell by 32,000, registering the largest monthly drop since March 2023. In addition, August’s private payrolls were revised lower by 57,000 to show a loss of 3,000 jobs.
“Despite the strong economic growth we saw in the second quarter, this month’s release further validates what we’ve been seeing in the labor market, that U.S. employers have been cautious with hiring,” said ADP chief economist Nela Richardson.
After the release, the odds of a rate cut at the October 28-29 Federal Open Market Committee (FOMC) meeting jumped to 100%, up from 96.2% a day ago, according to CME’s FedWatch tool. In addition, the odds of two more rate cuts by year-end increased to 86.7% from 77.3%. Lower rates can benefit the employment rate by allowing companies to borrow at a lower price, stimulating growth in the process. Last month, Fed Chair Jerome Powell pointed to a weakening labor market as the main reason for the Fed choosing to cut rates by 25 bps.
The S&P 500 (SPX) closed with a 0.34% gain, while the Nasdaq 100 (NDX) returned 0.49%.
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