Here's the Biggest Danger of a Government Shutdown

The odds that the government will shut down at midnight on Tuesday have increased to 85% as both sides dig in. So far, the market reaction to this likelihood has been tepid; however, the possibility that the Department of Labor and other government agencies will not release key data, such as the September employment report, will create confusion and uncertainty.

The most significant risk of a government shutdown is that the issue will not be resolved quickly, and it will linger for an extended period. The longer a shutdown continues, the more uncertainty and short-term pain it creates, and investors are likely to remain on the sidelines until a resolution is reached.

There is a higher level of concern about a shutdown early on Tuesday, but a Consumer Sentiment Report and other data are also forthcoming. The indexes have been choppy with data centers and some AI plays rebounding after a rough patch.

The danger of deeper corrective action is relatively high, as investors await the start of the third-quarter earnings season. Big banks will kick things off in a little over a week and if there is a deeper correction due to a government shutdown it will create a very interesting technical setup especially if expectations are low.

For now, we will have to navigate the government shutdown and economic news. If the flow of economic news is interrupted then we will have the problem of uncertainty but a period of uncertainty is likely to be a buying opportunity. A shutdown is unlikely to last long, but trying to time it will be the biggest problem that traders face.

Price target increases for Nvidia  (NVDA)  and Alphabet  (GOOGL)  are helping to hold up the Magnificent Seven  (MAGS)  early on Tuesday, but most leading names are struggling. Most stocks are hitting overnight lows several hours before the open.

At the time of publication, Rev Shark was long NVDA.