The sudden ousting of House Speaker Kevin McCarthy has ignited concerns within financial circles, as analysts fear potential ramifications for the stock market. McCarthy’s instrumental role in brokering a short-term deal to avert a government shutdown and stabilize stocks now hangs in the balance.
Without McCarthy’s adept maneuvering, the road to a resolution before the looming November shutdown deadline grows murky, escalating the likelihood of a government stalemate. Dissent among far-right Republicans, who contested McCarthy’s compromises to stave off a shutdown prior to the October 1st cutoff, has triggered this revolt. Consequently, this dissent will pose a formidable challenge for McCarthy’s successor in navigating negotiations with Democrats.
Notably, financial titan Goldman Sachs holds the view that any prospective shutdown is unlikely to endure beyond two to three weeks. However, economists caution that this scenario looms over markets already grappling with various economic headwinds. Escalating oil prices, an ongoing auto workers’ strike, resumption of student loan payments, and the resurfacing specter of a government shutdown collectively form what EY chief economist Greg Daco has coined the “quadruple threat.” Daco emphasizes that these factors could “significantly weigh on GDP, particularly in an economy grappling with heightened prices and interest rates.”
Moreover, a potential government shutdown would render the Federal Reserve devoid of crucial economic data releases. This would leave market participants in a state of heightened uncertainty regarding the Fed’s future moves on interest rates. Such uncertainty would likely further unsettle an already volatile stock market, which has been experiencing turbulence owing to the uncertain trajectory of interest rates.
Historical data points to government shutdowns exerting a downward pull on markets. RBC Capital Markets strategist Lori Calvasina reveals that the median decline for stocks leading into the last seven shutdowns that spanned ten days or more averaged at 10.2%. Considering the ongoing sell-off, this median drop would position the S&P 500 just above the 4,100 mark — a dip of more than 3% from its Wednesday afternoon position.
In summation, the ousting of House Speaker Kevin McCarthy compounds an already precarious economic terrain, heightening the specter of a government shutdown and intensifying uncertainty surrounding the stock market. The full extent of the impact on the U.S. economy remains uncertain, underscoring the need for investors to vigilantly monitor unfolding developments.
Source: Yahoo Finance
