Government Shutdown – How does it affect the markets?


To discuss how the market has performed let’s begin with a discussion of the shutdown itself.  To hear the news media tell it, “800,000 employees are being required to work with no income.”  Not even close to true.  Take a look at this:

A government shutdown is when non-essential discretionary federal programs close. It occurs when Congress fails to appropriate funds. In the normal budget process, Congress appropriates funds by September 30 for the following fiscal year. When that doesn’t happen, then Congress enacts a continuing funding resolution. If Congress can’t agree on one, it forces a shutdown. It signals a complete breakdown in the budget process.

Current Shutdown

On December 21, 2018, the current shutdown began at midnight. On January 12, 2019, it becomes the longest shutdown in U.S. history, lasting 22 days with no end in sight.

About 400,000 non-critical employees of nine agencies were sent home without pay. In past shutdowns, Congress has reimbursed federal employees for lost wages.

Here is a breakdown of how many workers in each department were furloughed:

  1. Homeland Security – 13 percent of 232,860 workers. That’s about 30,373 workers
  2. Justice – 17 percent of 114,154 workers. That’s about 19,406 workers
  3. Agriculture – 40 percent of 95,383 workers. February food stamps could be cut. That’s about 38,153 workers
  4. Treasury – 83 percent of 87,267 workers. Tax refunds could be delayed. That’s about 72,432 workers
  5. Interior – 78 percent of 68,469 workers. National Park maintenance has decreased. That’s about 53,406 workers
  6. Transportation – 34 percent of 54,230 workers. Some security screeners have called in sick. That’s about 18,438 workers
  7. Commerce – 87 percent of 47,896 workers. That’s about 41,670 workers.
  8. Environmental Protection Agency – 95 percent of 13,872 workers. It can use reserve funds to stay open through December 28. That’s about 13,178 workers.
  9. Housing and Urban Development – 95 percent of 7,497 workers. That’s about 7,122 workers.

When you add up the numbers … out of 721,628 workers it appears that 294,178 that are currently out of work or furloughed.

Where is the 800,000 that the Media is screaming about every night on prime time news???

Source:  https://www.thebalance.com/government-shutdown-3305683

How many people does the government employee?

As of June 2017, there were 2,819,960 Federal Employees including the post office.  In addition, if we include the active military personnel that would be another 1,330,056 for a total of 4,150,016 bodies on the government payroll not including the three branches of government and all the people drawing some form of welfare.

Source:  http://www.governing.com/gov-data/federal-employees-workforce-numbers-by-state.html

So, where is the media coming up with 800,000 people without pay?  I have no darned idea.  It seems they will say whatever sells the best … and we Americans take it as Gospel!

Where’s your cash reserve?

I get a kick out hearing those that are currently furloughed wondering how they are going to make their next rent payment or their next house payment.  Or, how they are going to provide food for their family or pay for day care for the kiddies.  I do feel sorry for these people … but then I have to slap myself in the side of the head and say, “Where is your Emergency Cash Reserve?”

We’ve all been told all our lives that a rule of thumb is that a family should have enough cash on hand in a liquid cash investment to cover 3 to 6 months of their normal monthly expenses in case of an emergency.  Normal cash expenses would be any expense other than Savings & Investments and Taxes.  So if your family normally spends $5,000 per month … you really should have between $15,000 and $30,000 in a liquid position in case of an emergency (such as a government shutdown).  Personally, I’ve always told people when they set their budget the first item should be Savings & Investments and they should get into the habit of paying themselves first … not last if anything is left over … because in most families … nothing is left over.

I also believe that people should have a few thousand (perhaps at least 2 months of expenses) at home in a safe fireproof place.  What would happen if we had an electrical grid failure for a few days and you could not get money from the bank or the ATM.  Chances are if we are without an electrical grid for 2 months or longer … all the money in the world would be worthless since there would be nothing to purchase.  But, I will not get into that catastrophe here.

So how is the market handling this shut down?

The government had a partial shutdown beginning at 12:00 Midnight on 12/21/2018 as indicated above.  Today we are in the 21st day of this shutdown.  The market has actually been open for 13 of these 21 days.  On 12/24/2018 (Christmas Eve) the Dow Jones Industrial Average (DJI) closed at 21,792.20 and today it closed at 23,995.95 so in a period of 13 trading days during the Federal Government Partial Shut Down the stock market as measured by the DJI is up 2,203.65 points or 10.11%.

If you want to consider the S&P 500 (SPX) it closed at 2,351.10 on Christmas Eve and has risen to 2,596.26 as of the close today for an increase of 245.16 points or 10.43% in 13 trading days since the shutdown.

Considering the NASDAQ Composite (COMPX) … it closed at 6,192.92 on Christmas Eve as compared to a closing price today of 6,971.48.  That’s up 778.56 points or 8.47% in the first 13 trading days of the shut down.

So, as you can see, it appears the stock market likes having the government shutdown.  I don’t know if this trend will continue in the market … but I also don’t think the government is going to stay shutdown much longer.  Either congress is going to give in and give President Trump the money for the wall on our southern border or President Trump is going to declare a state of emergency and get the funding from the military budget, which could be replaced easily with the additional revenue being generated by the new trade agreement between Mexico and the United States of America.

In any event … there will likely be a wall … and Mexico will pay for it in a roundabout way.

There is going to be more down market days this year … the Media will see to that … but I think overall we will be higher by the end of the year than we are today.  How much higher?  I will go out on a limb and predict a 12% increase over today’s closing values.  Let’s see if I’m right or wrong!  After all, it is just a guess and your guess is as good as mine.

Have a great 2019,

Jerry Nix, Freewavemaker, LLC

 

One thought on “Government Shutdown – How does it affect the markets?

  1. Pingback: Government Shutdown, How it affects the markets – Part 2 – FreeWaveMaker.com

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.