According to Bank of America, the markets may experience significant volatility if the government shuts down next week. Historical data reveals that the S&P 500 typically sees an average decline of 5% during the week leading up to and the week following a government shutdown, based on statistics dating back to 1990. However, it’s worth noting that during the shutdown that extended from late 2018 into 2019, the index actually rallied by 6%.
Bank of America has provided a detailed analysis of market performance surrounding government shutdowns. As of now, Congress has yet to finalize a funding agreement before the impending Wednesday deadline. President Donald Trump has instructed federal agencies to prepare for potential mass layoffs if lawmakers fail to reach a consensus in time.
Mark Cabana, a rate strategist at Bank of America, informed clients that historically, markets tend to react less to shutdowns compared to the risks associated with a potential breach of the debt ceiling. However, some analysts on Wall Street have cautioned that the current weak economic environment could amplify the effects of a shutdown this time around.
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Here’s how the market moved in recent history
