Jim Cramer was on CNBC this morning highlighting that the trade is always to buy US government shutdowns and market selloffs. He highlighted the history and it’s unassailable.
I’ve written the same thing a hundred times over the years.
Here is why this time might be the exception:
The selloff isn’t really about the shutdown. This shutdown will get solved like all the others and it could be as soon as today. Maybe it drags on and the market freaks out more, I don’t know but I do know that it will get sorted and won’t be as bad as the market fears.
But the question to really consider is this: Is this Congress going to be run by DOGE? By the deficit hawks? By the Tea Party?
The baseline for myself and most market participants is that Trump’s priority is the stock market, not the deficit:
You could even argue that this week’s developments strengthen that as he’s aiming to eliminate the debt ceiling altogether.
But I’m not sure that’s Elon Musk’s priority and he’s bullying the GOP via threatening primaries. A big part of US growth in the past two years was running 7% deficits while much of the world was bringing down post-covid spending.
The risk here is that we get some kind of hawkish congress, or at least a few true believers that hold everything up. Given the composition of Congress, it doesn’t take many votes so long as Democrats stay united.
Now what do I think?
Congress is going to pass a corporate tax cut, to hell with the deficit. But until this week, I think that was 95% priced in and there are risks.