Government Shutdown Ends
The government shutdown matters to the economy; I talk it down because the media likes to exaggerate its importance. The good news is it looks like it will end soon as of Monday after it went on for just 3 days. The chart below shows all the government shutdowns since 1976. As you can see, stocks fall 0.6% on average and are negative 55.6% of the time. The one aspect this chart fails to capture is when the market realizes a deal is likely to get done it rallies before the actual deal is agreed upon because the market is forward looking. You can see this shutdown situation play out that way as stocks rallied on Monday, when it looked like a deal was agreed upon, before the shutdown was officially over. This 3 day shutdown was longer than many of the ones listed below. The longest one was in 1995-1996 which lasted 21 days.
The scariest part about this process is that the short term funding bill, which includes a 6 year extension of CHIP, only lasts until February 8th. We'll need to discuss this whole debate again in 2 weeks. The key discussion point in this government shutdown was the GOP making a firm agreement that it will take up the DACA legislation after the government re-opens. Because the Democrats were willing to take the GOP leadership's word, a deal was made. Essentially, the can was kicked down the road again. The issue is the can barely budged. You would think it would be easier to fund the government when the economy is growing quickly, but it still looks difficult. The ability for the government to remain open after February 8th comes down to if a DACA solution can be agreed upon. The President could be a hindrance to this process because he appears to take a harder line on immigration than the Congressional GOP members. However, he technically has no say in the process, so his opinion might not matter.
Citigroup Hit With A Major Onetime Tax Cost
The Q1 earnings results from FactSet show Citigroup had a big impact on the aggregate results, so let's review its quarterly report before diving into them. Citigroup had a good quarter as its adjusted earnings were $1.28 per share which beat estimates of $1.19. Revenues were $17.3 billion which met estimates. Revenues for consumer banking were up 6%. Revenues were down 1% in the investment and corporate banking business. credit losses increased 11%.
