Gov't shutdown impacts 'pile up,' weighing on market & economy

The US government has been shut down for over a month, marking the longest shutdown in US history.

PNC Asset Management Group chief investment strategist Yung-Yu Ma and Yahoo Finance Senior Reporter Brooke DiPalma join Opening Bid with Yahoo Finance Senior Reporter Allie Canal to examine the shutdown's effects on the markets (^DJI, ^GSPC, ^IXIC) and economy.

To watch more expert insights and analysis on the latest market action, check out more Opening Bid.

Video Transcript

00:00 Speaker A

the FAA slashing flights, that delay in economic data. Fed officials essentially flying blind at this point.

00:09 Speaker A

Young you, we've been hearing more commentary around the potential impact on GDP. How do you look at that impact and maybe the confidence that businesses could be feeling at this point or the lack thereof.

00:24 Young-Yu

Yeah, I think this is a tricky one because the markets and and perhaps the government officials were lulled into a sense of complacency because in the early days of the shutdown, you really don't have many immediate effects.

00:39 Young-Yu

The impacts are quite modest, but as you go along, the effects actually start to pile up both on consumer confidence, economic disruptions, business uncertainty. Businesses are already in a state of high uncertainty uh from the tariffs and they're already kind of dizzy from the tariffs and not knowing what to do and a lot of businesses are responding to that by not hiring. And I I think you just have this compounded on top of it. And so as this goes on, you actually can get uh some increasing economic disruptions, hits to confidence uh that do have real economic and market impacts because I think the a sentiment now is really starting to creep into the markets that this is uh a difficult and and increasingly a harmful environment with a government shutdown this long.

01:17 Speaker A

Do you think markets are underpricing some of that risk right now or are you starting to see signs that like you said, they're realizing, okay, investors are realizing that this maybe is something that could continue well into the holidays.

01:35 Young-Yu

Well, I think it's part of the softness that we're seeing in the markets. I think this adds to some of the challenges, uh the headwinds and it's not this uh sort of straight line process. Once you get a number of uncertainties that start to pile up, all of a sudden you start to see heavier weight on the market and some downturns or pullbacks. And so I think that's part of the mix of what we're seeing along with uh some areas where valuations might have been stretched. It's just wondering, given the state of affairs, are these companies uh worth this much in terms of in terms of paying for this growth. And if you're not confident about the future and the direction, uh it's hard to be confident about really paying premium multiples here. So it all comes together, but I do think that uh I do think that we're probably within say 10 days likely to see a resolution, but you know, it has to happen uh rather than just speculation.

02:18 Speaker A

And Brook retailers are already flagging weaker consumer demand heading into the holidays. How much of this is shutdown related versus tariffs versus still sticky prices on the inflation front.

02:31 Brook

Alia, I think it's a combination of all these economic factors are certainly making consumers a lot more picky. I spoke to one of my sources at PWC earlier this week and she was telling me that this low-income consumer continues to remain under pressure. The high-income consumer needs a soft market to do well.

02:49 Brook

And on top of that too, you have rising costs, you have the government shutdown, and you have the fear that tariffs are going to increase prices. What I'm hearing though, is that tariffs will increase prices more so in the first half of next year as opposed to ahead of these holidays.

03:04 Brook

Retailers really need to do well this holiday season. They need to keep prices pretty modest for consumers to go in. But we are still expected to see a modest single digit increase year over year this holiday season when it comes to sales, but NRF's sort of warning here saying that a notable headwind this year is that federal government shutdown, the timing of which is particularly challenging during this holiday season.

View Comments