Historically, the S&P 500 (IVV) rewarded investors during a U.S. government shutdown. The index usually rose during that period. This time is no different, as traders are betting that the shutdown will not last for very long.
Traders placed their bets in the drug sector. In what looks like a relief rally, shares of Pfizer (PFE), Regeneron (REGN), Eli Lilly (LLY), Novo Nordisk (NVO), Merck (MRK), and AbbVie (ABBV) jumped sharply on Wednesday. Stocks that fell the most in the last year rallied the strongest. LLY stock, for example, gained 8.5%.
The government shut down when the Republicans, who controlled the Senate, did not get enough votes for their spending bill. Democrats wanted health care tax credits extended. This has an impact on millions of Americans.
Economic Impact
Around 750,000 federal employees will not get paid during the first shutdown in around six years. It last shut down between December 21, 2018, and January 25, 2019. Investors should expect a small impact on sales for discretionary items, and traffic at restaurants to fall.
Markets also brushed aside the decline of 32,000 private payrolls last month. Economists expected around 45,000 jobs. Bank stocks like Citigroup (C), Bank of America (BAC), and Wells Fargo (WFC) fell on the news.
