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Daily Traders Edge

Day 17: Stocks and the US Government Shutdown

January 09
10:13 2019

The partial US government shutdown notched its 17th day Monday, officially tying 1978’s shutdown as history’s second-longest. It is also currently history’s most bullish shutdown, with a 5.5% S&P 500 return since December 21, the last trading day before the government closed.[i] And if it lasts until the weekend, it will surpass the 1995 – 1996 shutdown to claim the title of history’s longest. Exhibit 1 has the full leaderboard, in chronological order, and following it are some thoughts on a few shutdown-related news items.

Exhibit 1: US Stock Returns Surrounding Government Shutdowns

Source: Congressional Research Service and FactSet, as of 12/14/2018. *Before 1980, shutdowns were less complete, with some agencies staying open on the presumption Congress didn’t intend for them to close. Reinterpretation of the Antideficiency Act changed that.

Congress Is Now Refunding Your Tax Dollars as Well as Collecting Them

Historically, because the IRS is included in the “non-essential” government operations that mostly close during shutdowns, it hasn’t issued tax refunds when the government is shut. Yet tax returns are still due, leaving quarterly and annual filers alike a bit rankled. The beginning of tax filing season on January 29 therefore looked even more dismal than it usually would—until today, when the Office of Management and Budget (OMB) announced the IRS will still pay refunds after all. They had already planned to begin calling back workers if the government was still shut on the 29th, so they could still collect revenue, and apparently the White House realized paying refunds isn’t so non-essential from a political standpoint. House Democrats also seemed to realize this, as they were prepping a bill to reopen the IRS when the OMB made its move.

The resumption of refunds, though a small driver, is yet one more reason we don’t expect the shutdown to have a large impact even if it stretches on (and on). To the extent refund checks help support some consumer spending, they will be able to do so. That is a very, very incremental tailwind, but a plus all the same.

Shutdown KOs SEC, DKs IPOs

Or if you prefer words to acronyms, it turns out that because the Securities and Exchange Commission is also shuttered, startups can’t go public presently. That means a prolonged shutdown could bring disappointment for those hoping for splashy initial public offerings from trendy ride-sharing apps, a certain online corkboard or everyone’s favorite hotel disrupter. Some have argued this could have a wider economic impact by locking up capital and preventing newer companies from being able to raise money, but we have our doubts. For one, the economy has grown fine for years—and startups have found funding—despite billions of dollars being locked into these four companies and other long-awaited startups. As for stocks, IPOs generally aren’t a market driver unless there is a ton of them, causing stock supply to surge. Otherwise, they are mostly just trivia. If anything, delaying these gives investors a break from the temptation to chase hyped IPOs.

Continue Reading at Fisher Investments

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