US stocks have already been rattled in recent weeks amidst concerns that new tariffs under the Trump administration could push the economy into a recession in the back half of 2025.
And now investors have another major challenge to navigate: a potential government shutdown. US Congress has util midnight (Friday) to approve government funding and avoid a standstill.
The funding bill requires approval from the House of Representatives as well as the Senate before it can be signed into a law by the President.
However, the authorisation has so far come from the former only – leaving investors questioning if a shutdown is coming indeed and what it could possibly mean for their stock market investments.
How US stocks historically perform amidst shutdowns
Fortunately, the US stock market has a history of keeping its own amidst fears of a shutdown.
In fact, the benchmark S&P 500 index often stays in the green during a standstill and averages a meaningful gain of over 12% in the year after, according to data from Carson Investment Group.
And experts are broadly convinced that this time is not very likely to prove any different.
“Historically, government shutdowns have had limited market reaction. That is likely to remain the case,” wrote Ed Mills – a Raymond James analyst in a note on Friday.
Tariffs driven economic uncertainty remains a concern
While concerns of a shutdown have traditionally failed to spook investors, the “uncertainty coming out of D.C. is unwelcome in the current market climate,” according to the Raymond James analyst.
That’s because the Trump tariffs have already created a challenging macroeconomic backdrop for consumers and businesses alike, with many experts warning of an economic slowdown ahead.
Delta Air Lines and a bunch of names in the retail space have recently indicated early signs of a consumer pullback that have been hurting the overall sentiment.
Put together, these headwinds have pushed the benchmark S&P 500 index down more than 10% (correction territory) since February 19th.
Experts are lowering their year-end targets on S&P 500
Experts are turning increasingly cautious on the S&P 500 amidst the ongoing rout in tech stocks.
Earlier this week, David Kostin, a senior Goldman Sachs strategist, cited Trump tariffs and fears of a recession and lowered his year-end target on the benchmark index from 6,500 to the 6,200 level.
“The proximate causes of the market decline are the jump in policy uncertainty largely related to tariffs concerns about the economic growth outlook, and a positioning unwind, especially among hedge funds,” he said in a recent note to clients.
Kostin’s target, nonetheless, indicates potential for a more than 12% upside in the benchmark S&P 500 index from current levels.
Others, including a known market bull, Ed Yardeni, have also trimmed their year-end targets in recent days.
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