The U.S. government shutdown that began October 1 could prove longer and more disruptive than past episodes, with entrenched political gridlock raising risks for investors, according to Jefferies.
This marks the 15th shutdown since 1980 and the fifth to affect all federal agencies. The longest, during Trump’s first term, stretched 35 days and cost $18 billion in federal spending and $3 billion in GDP, the Congressional Budget Office estimated.
Markets have historically recovered quickly from shutdowns, with the S&P 500 rebounding after the 2018–19 episode. But Jefferies strategists warned that “policy-linked sectors often experience heightened volatility during such episodes,” particularly if the standoff drags on.
1) ’Interest rate-sensitive sectors:’ The halt of government data releases, including CPI, GDP, and jobs reports, would create a “data vacuum” heading into the Federal Reserve’s October 28–29 meeting, strategists said.
Without these inputs, the Fed may strike a more cautious tone. While private surveys continue, Jefferies cautioned that “the lack of official confirmation may lead to misreads of economic momentum.” That raises the prospect of volatility in Treasuries, mortgage-backed securities, and FX markets.
2) ’Regulatory-dependent sectors:’ Agencies such as the SEC, FDA, and EPA would effectively freeze activity, delaying IPOs, drug approvals, and environmental permits.
Biotech, pharma, and capital markets firms with time-sensitive approvals or funding plans could be hit hardest, strategists said.
"While some companies may benefit from reduced enforcement, others could face material delays in product launches or capital raising. Investors should monitor firms with pending approvals or compliance deadlines, as delays could affect valuations and deal pipelines," they wrote.
3) ’Government contractors:’ Uncertainty looms for defense, healthcare, and IT contractors, as updated contingency plans have not been issued. Previous documents suggested large-scale furloughs, including two-thirds of IRS staff and 42% of HHS employees.
The Trump administration has hinted at even deeper cuts, which could disrupt project payment schedules. “Although most payments are eventually reimbursed, the heightened rhetoric around a dramatic reduction in federal services could introduce additional volatility,” the strategists said.
Large contractors such as Lockheed Martin, Boeing, and General Dynamics are among those with significant federal exposure.
4) ’Managed care:’ The fight over Affordable Care Act premium tax credits poses direct risks. Democrats want a ten-year extension, while Republicans are pushing for a clean resolution without long-term healthcare provisions.
If the credits lapse during open enrollment, premiums could rise and coverage could shrink, hurting managed care providers through weaker enrollment and delayed reimbursements.
Even if a short-term fix emerges, Jefferies warned that “the political standoff could pressure healthcare stocks in the near term.”
Investors should be looking for guidance from CMS and Congress on whether temporary or retroactive measures are under discussion, they added.
Source :
https://www.investing.com/news/stock-market-news/what-a-longer-government-shutdown-could-mean-for-investors-4266786
