On Tuesday night, stock futures experienced a slight decline as investors closely monitor the potential implications of an impending U.S. government shutdown. Futures associated with the Dow Jones Industrial Average fell by 68 points, marking a decrease of 0.15%. Similarly, both S&P futures and Nasdaq 100 futures saw declines exceeding 0.2%. These market movements come just ahead of an anticipated halt in government operations, set to commence at midnight unless Congress reaches an agreement to fund the government before the Wednesday deadline.
The Republican-controlled Senate is anticipated to hold a second vote on a temporary spending bill, which Democrats hope to leverage to secure an extension of health care tax credits that benefit millions of Americans. Earlier in the day, the U.S. Securities and Exchange Commission instructed its employees to prepare for a possible funding lapse, as reported by Reuters. President Donald Trump described a government shutdown as "probably likely," attributing blame to the Democrats, stating, "I didn't see them bend even a little bit." The deadlock has led to mutual blame among lawmakers, raising concerns about the political climate.
Historically, the stock market has often navigated past government shutdowns with relative ease. However, this particular situation may pose greater risks due to various economic factors at play. Investors are increasingly anxious about a slowing labor market and inflation risks, coupled with historically high stock valuations and concentrated market levels. The nonpartisan Congressional Budget Office estimated on Tuesday that the shutdown could result in the furlough of around 750,000 federal employees. Over the weekend, Trump threatened mass layoffs of federal workers should the government shut down.
This time, the market's attention is likely to center on the duration of the shutdown, as a prolonged closure could hinder the release of crucial economic data ahead of the Federal Reserve's meeting scheduled for late October. The Labor Department announced on Friday that it would suspend almost all operations, which implies that the September nonfarm payrolls report will not be published as originally planned at the end of the week. In the absence of this jobs data, the upcoming reading on private sector job creation from payroll processing group ADP on Wednesday morning is expected to carry greater significance.
The lack of government data—especially the critical BLS jobs report set for Friday—raises concerns, particularly given recent indications of a weakening labor market that prompted the Federal Reserve to consider reducing interest rates just weeks ago, according to Mark Luschini, chief investment strategist at Janney Montgomery Scott. However, if history is any guide, these government shutdowns tend to resolve relatively quickly and typically do not cause significant disruptions to equity prices, Luschini noted.
In the meantime, investors are likely to seek alternative data to validate the stability of the job market and the broader economy. Notably, major U.S. indexes concluded Tuesday on a positive note, capping off an unusually robust trading month in September. The third quarter, which wrapped up on Tuesday, saw the S&P 500 achieve a commendable gain of 7.8%. Historically, the stock market has shown resilience during government shutdowns. According to research from Raymond James, stocks have generally risen during the last five government shutdowns, with the S&P 500, MidCap 400, and Small Cap 600 all gaining more than 3% during those periods.
Separately, shares of Nike saw an increase of more than 4% in after-hours trading on Tuesday following the company's unexpected outperformance in earnings and revenue expectations for its fiscal first quarter. This positive news adds a bright spot in a market otherwise shadowed by the uncertainties surrounding the impending government shutdown.
