Stocks shrug off government shutdown for now

By John Towfighi, CNN

New York (CNN) — Stocks were mixed on Wednesday as the US government officially entered a shutdown and Wall Street grappled with the uncertain implications for the economy.

The Dow was up 67 points, or 0.14%. The broader S&P 500 was flat. The tech-heavy Nasdaq Composite was down 0.1%.

The government at midnight officially shut down for the first time in seven years after lawmakers failed to agree on a funding bill.

The gridlock on Capitol Hill is set to put many federal employees out of work indefinitely, in addition to stoking uncertainty about the fate of regularly scheduled releases of key economic data.

History shows that the stock market tends to be largely unfazed by government shutdowns. Since 1976, there have been 20 government shutdowns, with an average length of eight days each, according to Adam Turnquist, chief technical strategist at LPL Financial.

In the one- and three-month periods after each of the shutdowns ended, the S&P 500 gained an average of 1.2% and 2.9%, respectively, Turnquist said in a note.

“Investors have generally looked past budget-related disruptions, prioritizing corporate earnings, broader economic trends and other key macroeconomic factors,” Turnquist said.

While the market tends to shrug off the political standstill, specific sectors that rely on government contracts — such as defense and healthcare — can be more sensitive to shutdowns, he added.

Stocks are coming off a historically strong September. The S&P 500 rose 3.5% across the month, posting its strongest gains in September since 2010. The Dow hit a record high on Tuesday ahead of the government shutdown.

Bonds also rallied on Wednesday after the latest data from payrolls firm ADP showed the private sector lost 32,000 jobs in September. Two-year, 10-year and 30-year Treasury yields all fell as investors snapped up bonds.

Investors are mixed

Some investors said there are unique risks associated with this shutdown because of heightened attention to economic data, along with concerns that investors and companies could be left in the dark without reliable information about the economy if the shutdown lasts for an extended period of time.

“We believe that a shutdown will have only a small and transitory economic impact, but it may spur some financial market volatility, especially if delays in government economic reports obscure the path of Federal Reserve interest-rate cuts,” Jennifer Timmerman, investment strategy analyst at Wells Fargo Investment Institute, said in a note.

The market is being relatively sanguine and overlooking risks associated with the shutdown, according to Keith Buchanan, senior portfolio manager at Globalt Investments.

“We don’t think that the market appreciates the risk of a stickier, more contentious shutdown,” Buchanan said. “We don’t feel like the market is appropriately pricing the risk of this getting worse than it has in the past.”

The S&P 500 is coming off of five months of gains in a row. US stocks have climbed higher despite concerns about geopolitical uncertainty, renewed tariff threats and faltering consumer sentiment.

Eric Teal, chief investment officer at Comerica Wealth Management, said he does not the think shutdown will prove to be an issue for stocks.

“I think it’s more of a political event than a market event,” Teal said.

Corporate earnings continue to beat expectations, providing enough fuel for the market rally to continue at least until investors parse through third quarter earnings results in the coming months, Teal said.

Indeed, corporate America’s profits have yet to display signs of slowing down, defying expectations and providing fuel for stocks to move higher. Stocks have also rallied on optimism about the Fed cutting interest rates.

Fed rate cuts can lead to lower savings rates and borrowing costs, encouraging consumer spending, investing and business activity, providing a sustained tailwind for stocks.

“We advise investors to look past shutdown fears and focus on other market drivers, such as the mix of continued Fed rate cuts, strong corporate earnings and robust AI capex and monetization,” Ulrike Hoffmann-Burchardi, global head of equities at UBS Global Wealth Management, said in a note.

Safe havens surge

While stocks are hovering near record highs, a surge in gold and silver prices is signaling lingering concern about political and economic uncertainty.

Precious metals like gold and silver can serve as stores of value amid times of turmoil. Gold in particular is considered a hedge against inflation and instability.

Gold futures traded in New York rose as much as 0.7% on Wednesday to hit a record high $3,900 a troy ounce. Gold prices are up almost 48% this year.

Silver, a cheaper alternative safe haven, rose 1.6% to $47 a troy ounce. Sliver prices are up 62% this year.

“[The] government shutdown has investors gravitating toward safe-haven assets,” José Torres, senior economist at Interactive Brokers, said in a Tuesday note.

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