What A Government Shutdown Could Mean For You

In a nail-biting development amid fears of a government shutdown, the House has passed a bipartisan bill, narrowly averting the blackout as the midnight deadline looms.

The latest move paves the way for a Senate vote to fund the U.S. federal government for an additional 45 days. 

House Speaker Kevin McCarthy unveiled the proposal amid internal clashes among House Republicans. 

Now awaiting the Senate's approval, the bill is includes the natural disaster aid the White House had sought but lacks the $6 billion Ukraine aid.

The clock is ticking, and the Senate has until the witching hour to seal the deal and thwart a funding blackout.

Economic Resilience Amid Political Drama

Historical data from Morgan Stanley reveals that the economy has remained resilient during past government shutdowns. Even in the 2018-2019 shutdown, where 800,000 federal workers went unpaid for a month, the GDP only dipped by $3 billion or 0.014% of the 2018 GDP.

A glance at history underscores the economy's resilience; since 1976, amidst 20 government shutdowns, the real GDP has maintained an average growth of 2.2%. 

Workers and Economy in the Crosshairs

Over 2 million federal workers could face furloughs or work without pay, a note by CNBC reveals. 

Goldman Sachs economists warn of a 0.2 percentage points reduction in growth per week in the event of a shutdown, attributed mainly to the instant withdrawal of spending power due to unpaid federal salaries.

Defense and Healthcare: The Silver Lining?

For equity investors, opportunities may lie in the defense and healthcare sectors, historically known to rally during shutdowns. 

Defense has gained 5.2%, and healthcare 2.3%, outperforming the S&P 500's 3% return during past shutdowns, the Morgan Stanley report points out.

Spotlight on Stocks

Eli Lilly And Company LLY and Novo Nordisk NVO are notable mentions in healthcare, boasting significant market caps and impressive yearly growth. LLY has a dividend yield of 0.80%, while NVO has a dividend yield of 1.1%.

In defense, despite potential impacts from the shutdown, Lockheed Martin Corp. LMT remains a key player to watch. 

This is because a report by Barron's suggests that defense stocks underperformed the S&P 500 by just one percentage point during shutdowns and outperformed by two percentage points after shutdowns end.

Read More: A False Recession Signal Is Here: Analyst Torches Theory Around Industrial Stocks

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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