Equity futures are heading north this morning after the US
government shut down. Why?
It is actually not as surprising as one would think. In general,
analysts on the street were already assuming a partial shutdown
(more on this later), as suggested by analysts at MT Newswires
Market sentiment has become increasingly more bearish regarding
the "dysfunction" in the government.
Moreover, government shutdowns are actually more normal than one
In fact, George W. Bush was the only president in recent decades
to not experience some type of government closure. Recall that the
threat of shutdowns has happened before: under Former Presidents
Gerald Ford (once), James Carter (five times), George H.W. Bush
(once), and Bill Clinton (twice).
It is important to note that the entire government is not out of
a job today. This is a partial shutdown. Most of the 3.3 million
government workers are deemed "essential." It is estimated that
800,000 government employees will not be working.
Behind the scenes, a deal is likely slowly in the works. There
will potentially be concessions on repealing the 2.3% excise tax on
medical device makers, which would positively impact Medtronic (
), St Jude Medical (
), Waters Corp (
), and Boston Scientific (
Putting this into perspective, investors recognize the
difference between a government shutdown and the debt limit
deadline in mid-October.
While counter-intuitive, sequesters and closures in the past
have lead to modest equity volatility (VIX). This shutdown would
likely reduce the appetite of Congress to allow a debt limit crisis
(which is what the markets really care about).
The impact on growth from this stoppage should be relatively
minimal assuming that it will last a few days to a few weeks, at
most. According to IHS, it is estimated the shutdown will cost $300
million per day.
DJIA 15075.0 +29.0 +0.19
IXIC 3217.0 +8.0 +0.25
SPX 1678.0 +3.75 +0.22
MDT 53.25 0.00 0.00
STJ 53.64 0.00 0.00
WAT 106.21 0.00 0.00
BSX 11.74 0.00 0.00
VIX16.60 0.00 0.00