'We've Seen This Movie Before' | US Shutdown Impact

Economic Impact and Labor Market - The expectation is that the current situation will last a few days, but the focus is on the labor market due to potential furloughs affecting around 900,000 federal workers and delays in pay for all federal employees [2][3] - The Trump administration is considering making some furloughs permanent, which could create a shock in the job market, and the Federal Reserve is closely monitoring the labor market as it considers future policy [2][3] Market Reactions and Valuations - Past government shutdowns have had limited effects on bonds and stocks, but current equity valuations are stretched, with a P/E ratio around 22 times, which is above average [3][4][5] - Historical data suggests that investing in the S&P 500 at such a high forward P/E multiple has resulted in muted returns over the next ten years, raising concerns about investor patience during the shutdown [5][6] Credit Market Dynamics - There is increasing demand for alternatives in credit, with a notable rise in private credit funds and interest from private equity sponsors and borrowers [7][9] - Concerns have been raised about the quality of underwriting and covenants in the private credit market, with a degradation noted, while public markets are also seeing significant demand, evidenced by $60 billion in high-yield bond issuance this month [10][11] Consumer Spending Trends - Current data indicates a bifurcation in consumer spending, with higher-income consumers maintaining spending levels while lower-income consumers may already be experiencing recessionary conditions [13][14] - Weak data for travel and hotel occupancy in August suggests that higher-end consumers are becoming more cautious amid market uncertainties [14]