Government Shutdown and its Impact on Stock and Bond Markets

The U.S. government is on the verge of a shutdown, and this could have significant consequences for stock and bond markets, warned Securities and Exchange Commission (SEC) Chair Gary Gensler. During a recent hearing before the House Financial Services Committee, Gensler explained that if a shutdown occurred, approximately 93% of the SEC staff would be furloughed, leaving only a minimal team to oversee market operations.

Gensler expressed concerns about the lack of full-force oversight, stating that the absence of sufficient staff would hinder the SEC's ability to monitor the market and supervise companies looking to go public. If the government shuts down, it could potentially impede public companies from issuing new debt or equity to support their operations.

To mitigate the impact of a shutdown, Gensler advised companies to complete their public offerings before Friday if they are ready. Otherwise, they could face difficulties accessing the markets during the shutdown period.

During the shutdown, the SEC would still be able to receive tips and complaints from the public but would lack the necessary staff to address these issues unless they represent an emergency situation posing an imminent and significant threat to property protection.

When questioned about the SEC's response to major disruptions in capital markets, operations, and infrastructure during a shutdown, Gensler acknowledged that senior leadership would be present, but overall, the agency would operate with a skeletal staff.

While historical analysis has shown that U.S. stocks, particularly those measured by the S&P 500 (SPX), have performed well during government shutdowns, market participants remain cautious in light of the potential disruptions looming ahead.