Major stock market indexes are trading near all-time highs, but could start to decline ahead of a looming government shutdown that could occur as early as next week.
Government Shutdown Looms
Wednesday, Oct. 1, marks the deadline for a potential government shutdown if Congress does not reach an agreement on a funding bill or a temporary extension.
Democrats are pushing for an extension to healthcare benefits under the Affordable Care Act, while Republican members appear unwilling to negotiate on the matter.
Senator Majority Leader Chuck Schumer (D-N.Y.) has placed the blame on any government shutdown on President Trump, going so far as to call the pending funding deadline the "Donald Trump shutdown."
House Minority Leader Hakeem Jeffries (D-N.Y.) said Democrats would support a bipartisan spending plan that safeguards healthcare.
Trump, meanwhile, is blaming the Democratic Party and could be using a looming shutdown as political leverage.
The White House has warned that a government shutdown will result in mass layoffs, potential furloughs, and the termination of federal employees.
Betting Odds Rise
With Republicans and Democrats in Congress failing to come to the negotiating table and Trump canceling meetings with members, the odds of a government shutdown are rising ahead of the deadline, which is less than a week away.
On the prediction market Kalshi, the odds of a government shutdown occurring on Wednesday, Oct. 1, currently stand at 65%, suggesting a shutdown is more likely than not.
A prediction market for a government shutdown this year is at 75%, suggesting that if a temporary solution extends the deadline, a shutdown will still occur in 2025.
Another prediction market allows users to predict how long a government shutdown will last, with a forecast of 5.2 days. Here are the betting odds:
- More than 0 days: 77%
- More than 3 days: 67%
- More than 5 days: 47%
- More than 10 days: 33%
- More than 35 days: 18%
Prediction markets suggest that a government shutdown is more likely than not, which should prompt investors to pay close attention.
What Happened During The Last Government Shutdown?
The last major government shutdown occurred from Dec. 22, 2018, to Jan. 25, 2019. At 35 days, this marked the longest government shutdown in American history.
Among the causes for the shutdown was a disagreement over funding for a border wall between the United States and Mexico under President Donald Trump.
The last government shutdown resulted in around 800,000 workers being unpaid for a month, and the GDP dropped by approximately $3 billion.
Investors will closely monitor a potential shutdown, as stock market indexes like the S&P 500, which is tracked by the SPDR S&P 500 ETF Trust (NYSE: SPY), could decline ahead of the deadline.
The SPDR S&P 500 ETF Trust closed at $240.70 on Dec. 21, 2018, ahead of the deadline, which was on a weekend. The ETF opened at $239.04 on Dec. 24 and closed at $234.34, dropping 2.6% from the previous closing price.
The ETF traded lower and was highly volatile during the start of the shutdown, but eventually traded higher, likely due to optimism for a funding resolution.
On January 25, 2019, the ETF closed at $265.78, up 10.4% from its closing price prior to the shutdown.
The year 2019 went on to be one of the best years investors have seen in some time, with the SPDR S&P 500 ETF Trust up 31.2% for the whole year.
This is the best return for the ETF over the last 11 years, indicating that the longest government shutdown in history was only a minor factor in 2019 and did not significantly impact markets at the start of the year.
Time will tell if there is a government shutdown and if history repeats itself with a short-term market drop followed by strong returns.
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