US government shutdown: Risk or investment opportunity?

VTV.vn - The US government has been shut down for a week, but stocks are still rising thanks to expectations of a Fed rate cut, although analysts warn of risks if the situation persists.

The US Capitol building in Washington, DC. Photo: THX/VNA

The US government has been shut down for a week now, and many important economic indicators related to the labor and employment situation have not been released. However, the market is still operating quite smoothly. So what is the driving force behind this phenomenon and can the market continue to rise or is there still a risk?

Major indices listed on the New York Stock Exchange have been rising steadily over the past week. Expectations of further interest rate cuts by the Federal Reserve have outweighed concerns about a potential US government shutdown.

The Wall Street Journal published an article titled: "Stocks hit record highs on optimism about interest rate cuts." The article analyzed how investor optimism about further Fed interest rate cuts fueled US stocks to reach new record highs at the start of the week.

According to CME's FedWatch tool, traders are anticipating two more interest rate cuts in the remainder of the year. Some investors are ignoring the government shutdown, viewing it as a recurring event with little impact on the market. Instead, they have shifted their attention to the upcoming third-quarter earnings reporting season.

Yahoo's Finance page further explains: Strong stock market gains during government shutdowns are not unprecedented. According to data from LPL Financial, since 1955, the S&P 500 has consistently performed positively during every government shutdown.

From another perspective, some newspapers suggest that investors should remain cautious about the market's continuous peaks, as there are still significant risks if the government shutdown continues.

Reuters is one of the newspapers that clearly emphasized this point in the article: "A prolonged US government shutdown could increase market risks".

Specifically, a government shutdown lasting several weeks could cause confusion regarding the Fed's monetary policy direction, as the central bank would lack official data to support its decision-making. At the same time, a prolonged government shutdown could also hinder economic growth.

According to an expert quoted by the newspaper, if the government extends the deadline beyond the previous 2-4 week timeframe, it will lead to concerns among global investors regarding the US economy. This expert himself has moved some assets out of US Treasury bonds to seek other investment portfolios, including international bonds.

Bloomberg has assessed that if the US government shutdown lasts longer than a month, the stock market's rise will be slowed. In the current context, the USD is the asset under the strongest downward pressure.

Source: https://vtv.vn/chinh-phu-my-dong-cua-rui-ro-hay-co-hoi-dau-tu-10025100816131558.htm