While the stock market might cheer an end to one ‘spook’ factor, the US economy is likely to show the negative effects of this unusual American practice of sending public servants home because of money problems!

Our stock market had a strong finish to yesterday’s trading, and the big driver was news that the US government shutdown (the longest in history) was about to end.

While the stock market might cheer an end to one ‘spook’ factor that has sent share prices down over the past two weeks, the US economy is likely to show the negative effects of this unusual American practice of sending public servants home because of money problems!

Give or take 24 hours, this shutdown has gone on for 41 days, surpassing the record set by Donald Trump’s first ‘gig’ as President in 2018/19 that lasted 35 days. Bill Clinton racked up 21 days in December 1995, while Barack Obama had a 16-day closure, showing shutdowns are an all-American stunt!

Causing the shutdown was a Republican-Democrat spat over Affordable Care subsidies, but the stalemate ended when eight Democrat senators sided with their opponents to pass the bill.

But in true Hollywood tradition, a last minute change of mind by an individual senator could throw a spanner into the works. “There is more to come before the government can reopen. Any one senator can delay consideration of the package for several days, plus the House will have to return and adopt the deal struck in the Senate before it gets sent to President Donald Trump’s desk,” CNN explained.

But the economic implications of this shutdown could be felt for a number of months or longer, which partly explains why stocks have been falling over the past two weeks. “The shutdown’s effects are being felt across the country,” CNN again reported. “Ahead of the vote, Transportation Secretary Sean Duffy said he believed air travel would be “reduced to a trickle” ahead of Thanksgiving. And the Department of Agriculture ordered states to stop issuing full food stamp benefits after a Supreme Court move.”

Food stamps being issued, undoubtedly to public servants who aren’t being paid, underlines the issues that currently face some Americans and their economy.

Thanksgiving at the end of November is followed by Black Friday, when retailers historically go into the black after being in the red profit-wise for a large part of the year. Clearly, the shutdown could make this first day of the US holiday season of shopping a weak one, which wouldn’t be a plus for the economy or stock prices.

On Friday, the apnews.com reported the following: “Consumer sentiment dropped to a three-year low and close to the lowest point ever recorded by the University of Michigan one month into the government shutdown, with pessimism over personal finances and anticipated business conditions weighing on Americans.  The November survey showed the index of consumer sentiment at 50.4, down a startling 6.2% from last month and it plunged nearly 30% from a year ago. Also, with public servants returning to work, we will soon the latest updates on the US economy, which have gone missing because government statisticians were shut out of their jobs.”

On Saturday in the Switzer Report, I looked at why stock prices were falling and came up with these seven challenges to investor optimism:

1. AI over-investment concerns have hit tech and consumer discretionary stocks.

2. Bitcoin, which often tracks tech stocks, has dropped 8% this week and can be an omen indicator of trouble ahead.

3. At the Global Financial Leaders Investment Summit in Hong Kong on Tuesday, valuation concerns were voiced by several Wall Street CEOs.

4. Trump’s tariffs are now in the hands of the US Supreme Court and could be ruled illegal.

5. The US government shutdown has reached its 37th day, marking the longest shutdown in the nation’s history.

7. China’s exports unexpectedly contracted 1.1% in October, dealing a blow to an economy already at risk of a slowdown in the final months of the year.

Undoubtedly, the shutdown and AI concerns were the biggest negatives for stocks. While one problem looks set to dissipate, doubts over AI being over-hyped and over-invested-in could remain as a brake of stock buyer enthusiasm.

Crucial for stocks on Wall Street and then here will be what the US economic data drops for unemployment and inflation tell us over coming months, as US statisticians update us on what has been going on in the US labour market and with prices.

While the December quarter is usually a good month for US stock prices and then for us here in Australia, some of the historically wild challenges for stocks such as shutdowns, the Supreme Court’s view on the legality of the Trump tariffs and this spectacular impact of AI on the share prices of big tech companies means this is a very unusual December quarter.

While I’m usually good at hitting a curve ball from the stock market and the economy, there are so many curve balls right now that I’m lacking confidence on where share prices might be heading. And this comes as a more notable pullback for stocks is overdue.

While it's a good sign that US stocks rose on the shutdown solution news, government won’t be back to normal until January!

The following from Tim Holland, chief investment officer at Orion, on CNBC, sums up the cautious optimism that now prevails on Wall Street. Holland cited investor anxiety around company valuations, a possible AI bubble and the shutdown as the primary catalysts for the recent downbeat sentiment.  “It’s been a bumpy November for risk assets. The concerns last week were reasonable, but I think we’ve at least taken one of those three concerns out of the picture, and I think that’s a big deal.”

He added: “If you think about the government reopening, the One Big Beautiful Bill Act, probably 13% year-on-year earnings growth and seasonality being a tailwind, we’re still pretty optimistic on the economy and on risk assets into year-end.”

That said, there are still curve balls out there for stock players and, ultimately, for the US economy.

If you ask me if I think stocks can resume rising right now, I’ll confidently give you a “definite maybe’!