This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Government Shutdown: How Will It Impact Your Portfolio?

By Hal M. Bundrick

NEW YORK (MainStreet) ¿ The government shutdown may have little immediate impact on your investment portfolio, but a larger threat looms by mid-month, according to Wall Street analysts.

As more than 800,000 federal civilian employees and as many as 1 million workers face furlough, expect an increase in market volatility at the very least, says Russ Koesterich, chief investment strategist for BlackRock.

"A pickup in volatility can be a short-term negative for stocks since a shutdown would modestly hurt fourth-quarter economic growth and cause a dent in consumer confidence," says Koesterich in an analysis. "However, assuming that any government shutdown is resolved within a week or two, we do believe that the longer-term impact will be limited. Investors should prepare themselves for more market volatility, but we would expect only a modest correction in stock prices."

But Koesterich says the situation may change abruptly in the coming weeks if Congress and President Obama don't come to an agreement to raise the $16.7 trillion debt ceiling, forcing the U.S. into a technical default on its debt.

"This would be a much more serious situation," he says. "A technical default on U.S. debt would cause a significant blow to the global financial system, would almost certainly cause a sharp pullback in stock prices, particularly U.S. stocks, and would be a negative for fixed income credit sectors. In fact, about the only asset class that would benefit from a debt ceiling breach would be gold."

In 1995 and 1996 the federal government faced two shutdowns and the stock market remained resilient, notes Roger Aliaga-Díaz, a senior economist for Vanguard. "In fact, markets were defiant, and broad equity and bond prices rose against the pessimism," he adds.

But Aliaga-Díaz also cautions that the stakes are high as lawmakers face the next challenge.

"The debt-ceiling discussion has a big symbolic component," he says. "If Congress actually failed to increase the limit, it would mean a tremendous fiscal squeeze of the size of the budget gap and a significant challenge for the 'full faith and credit' of the U.S. government. The impact on the economy from such a dysfunctional political outcome would be unthinkable."

--Written by Hal M. Bundrick for MainStreet

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,063.61 +9.90 0.05%
S&P 500 2,092.58 +3.81 0.18%
NASDAQ 4,811.8050 +4.9460 0.10%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs