Royal: Market impacts from shutdowns have typically been muted

Market Impact of Potential Government Shutdown - The market impact of government shutdowns has typically been muted, with about seven shutdowns in the last 40 years [2] - The market doesn't seem very concerned about a potential government shutdown, with the S&P up about 05% and the NASDAQ even higher [3] - A guest believes there's about a 70% chance of a shutdown, which could impact the jobs report and other upcoming reports [3] - Markets don't like uncertainty, especially in a data-dependent time, and a shutdown will impact data releases [5] Federal Reserve and Interest Rate Cuts - The market is pricing in a high probability of a rate cut at the October meeting, potentially followed by a second cut [5][6] - The Fed may have to look to other data sources like the ADP report due to the shutdown impacting data releases [5] - The employment backdrop is weakening, with jobless claims ticking up and people working part-time for economic reasons increasing [7][8] Market Broadening and Sector Performance - There is a possibility of market broadening, with small caps potentially outperforming due to being more rate-sensitive [8][10] - Small caps seem like a bit of a catch-up trade that's already lost a lot of steam [12] - Modest weakness in the economy may make leaning into cyclical sectors like industrials and financials less desirable [12] Portfolio Strategy - Bank of America suggested a 25/25/25/25 portfolio allocation: stocks, short-term T-bills, bonds, and gold [13] - A high allocation to short-term instruments like T-bills may be less attractive as money market rates come down with Fed rate cuts [14] - Gold can be used to hedge against inflation, but a diversified portfolio of material stocks could provide similar protection [15]