Investors breathed a sigh of relief when the government shutdown was declared over on Friday, but the threat of another disruption still hangs over the market.
The upbeat market sentiment that had economic experts over the weekend predicting a rebound and maybe even some relief from the volatility had vanished by Monday morning. In a Sunday interview with The Wall Street Journal, President Donald Trump cast aspersions on the bipartisan congressional group working to find a solution to the president’s demand for a southern border wall — a demand for which the president was unable to drum up enough support when Republicans held both houses of Congress, and one that is less likely to be met now that the House of Representatives is under Democratic leadership.
Trump told the Journal he put the odds that the group could produce an agreement he would be willing to sign at “less than 50-50,” indicating that the nation might be subjected once more to a shutdown like the one that sidelined some 800,000 workers and led to chaos at airports, warnings of delayed tax refunds, and increasing worry about economic losses.
“If that were to happen, that would obviously be a cause for concern for investors, because that would mean the impact of slowing economic activity would accelerate,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
“What moved markets from greater certainty on Friday to greater uncertainty today are a few things,” said Mike Bailey, director of research at FBB Capital Partners.
This week is a big one for Wall Street, with a number of big companies — including some of the biggest tech firms — reporting earnings, a Federal Reserve meeting and the January jobs report being released.
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Experts said that uncertainties around tariff impacts, indications of a slowdown in global economic growth and the Fed's timeline for raising interest rates all are amplified by the prospect of Shutdown 2.0.
“I think people are a little skittish there,” Bailey said.
“The dispersion in estimates for the S&P 500 seems to be widening and the profit picture is the most uncertain it has been in years,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute. “It will take time for investors to get their questions answered and regain confidence.”
“Probably the biggest concern for markets is how will trade impact companies,” Samana said.
Industrial equipment manufacturer Caterpillar reported lower-than-expected earnings Monday morning before the market opened, saying that the steel tariffs are cutting into profits, while chip-maker Nvidia cut guidance due to “deteriorating” conditions in the crucial Chinese market. Both announcements drove markets into further decline, with the Dow Jones Industrial Average down just below 400 points on Monday morning.
“Investors will be parsing earnings reports to gauge whether the damage from tariffs is deeper or wider than what they’ve previously thought. No doubt there will be surprises both positive and negative on that front while acknowledging that this is uncharted territory,” said Mark Hamrick, senior economic analyst at Bankrate.
Despite Trump raising the prospect of Shutdown 2.0, lawmakers in all likelihood are loathe to revisit a situation that turned American public sentiment against Washington. A NBC News/Wall Street Journal poll conducted before the end of the shutdown was announced on Friday found that just over one in four respondents think the country is “headed in the right direction.”
“It is difficult to imagine that elected leaders are willing to go to the mat and allow a second shutdown in February. My sense is that all sides realize that their constituents and government workers have grown extremely tired of these tactics, which have proved ineffective as a bargaining tool,” Hamrick said.
But if lawmakers are unable to come to a resolution, or if Trump refuses to sign off on a deal they forge, the market fear factor present during the last shutdown will be fresh in investors’ minds.
“Both sides seem to be having difficulty de-escalating tensions and collaborating — that’s bothering markets,” Samana said. “Another shutdown, if it happens, would be most damaging for business and consumer confidence, and the broader implications for economic growth.”