{"id":45492,"date":"2023-08-07T13:49:18","date_gmt":"2023-08-07T17:49:18","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/a-government-shutdown-could-be-months-away-heres-how-it-would-further-roil-markets-after-fitch-downgrade\/"},"modified":"2023-08-07T13:49:20","modified_gmt":"2023-08-07T17:49:20","slug":"a-government-shutdown-could-be-months-away-heres-how-it-would-further-roil-markets-after-fitch-downgrade","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=45492","title":{"rendered":"A Government Shutdown Could Be Months Away\u2014Here\u2019s How It Would Further Roil Markets After Fitch Downgrade"},"content":{"rendered":"
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Topline<\/h2>\n

The looming threat of a government shutdown this fall may shake up the U.S. economy and stock market, according to economists and strategists, further muddying the macro outlook after last week\u2019s historic downgrade to the U.S.\u2019 credit rating shook the confidence of some investors.<\/p>\n

Key Facts<\/h2>\n
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A possible federal government shutdown beginning October 1 would occur \u201cat a particularly inopportune moment\u201d after Fitch ratings agency lowered its grade for some U.S.-issued debt from AAA to AA+, according to Bloomberg economist Anna Wong.<\/p>\n<\/p><\/div>\n

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The Washington closure would go into effect at the beginning of the government\u2019s 2024 fiscal year in October should Congress fail to pass funding provisions to sustain operations for the upcoming period.<\/p>\n<\/p><\/div>\n

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Many on Wall Street viewed the Fitch news as a nothingburger considering it was not based on new fiscal data and a similar downgrade a decade ago had little long-term material impact on stocks.<\/p>\n

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But added uncertainty from the shutdown could prevent the Federal Reserve from pivoting away from its tightening campaign this fall, TD strategist Gennadiy Goldberg told Bloomberg.<\/p>\n<\/p><\/div>\n

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A shutdown in itself could bring pain to the slowly-growing U.S. economy: Goldman Sachs economists led by Jan Hatzius forecasted in June that a shutdown would knock off 0.2 percentage points from fourth-quarter gross domestic product for each week the government remains closed.<\/p>\n<\/p><\/div>\n<\/div>\n

Crucial Quote<\/h2>\n

Citing the fiscal turbulence spurring Fitch\u2019s downgrade, Morgan Stanley strategist Michael Wilson cautioned clients Monday \u201cthe unfinished earnings decline that began last year has further to fall\u201d if government spending declines amid elevated political turmoil, sending yet another warning about U.S. stocks\u2019 broad rally amid an uninviting macro backdrop.<\/p>\n

Contra<\/h2>\n

Among the most prominent to dismiss Fitch\u2019s announcement last week as little more than noise were hedge fund billionaire Daniel Loeb and former Treasury Secretary Larry Summers; Loeb called<\/a> the downgrade a \u201ccry by Fitch for attention,\u201d while Summers characterized the agency\u2019s decision as \u201cbizarre and inept.\u201d In emailed comments last week, Commonwealth Financial fixed income strategist Sam Millette explained the \u201cFitch downgrade didn\u2019t tell investors anything they didn\u2019t already know on the topics of rising political dysfunction and the state of the U.S. economy.\u201d<\/p>\n

Key Background<\/h2>\n

The Dow Jones Industrial Average (down 1%), S&P 500 (down 2%) and tech-heavy Nasdaq (down 3%) have each slumped since Fitch\u2019s Tuesday afternoon downgrade. Historically, stock indexes post smaller returns during government shutdowns. The possible closure comes a few months after the U.S. narrowly avoided defaulting on its debt payment, which stunted stocks until a resolution was reached. Investors have been especially tuned into fiscal and monetary policy recently after the Fed hiked interest rates from near zero to over 5% over the course of 16 months.<\/p>\n

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