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volatility trading strategy shutdown economic data reports

How the Shutdown Is Worrying Traders Now (And Why It Shouldn’t)

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We wrote earlier this week about how large government crises, like the ongoing government shutdown, rarely correlate with increased volatility, encouraging traders to remain disciplined and stick to their strategy. We stand by that.

But as we mentioned in that post, just because these events don’t always correlate with increased volatility doesn’t mean they don’t impact the economy or the way we interact with the markets. There are a whole lot of people out there who missed a paycheck Friday as a result of Washington’s stalemate, and while that’s tragic in and of itself, it could have broader implications for the economy.

The ripple effect can’t really be understated, with current estimates saying the shutdown, now the longest in U.S. history at 24 days, could deplete billions from the economy. As the New York Times points out, it actually costs more to keep the government shut down than it does to keep it open. And if the shutdown’s impact mirrors the 16 day partial government shutdown of 2013, the resulting uncertainty could negatively impact consumer confidence in a big way, calling into question GDP growth and investor confidence.

But that's not what's worrying traders.

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No, the problem we’re facing is that the shutdown is affecting the release of key economic data reports. As Axios reports:

We'll still get the jobs report and inflation data like CPI, but economic indicators including the government's retail sales report, GDP and durable goods will all stop during the shutdown. Reports on factory orders, construction spending and new home sales have already been missed.

"That would be another reason for the Fed to proceed cautiously with further rate hikes," said Citigroup Research Analyst Andrew Hollenhorst.

Atlanta Fed Chair Raphael Bostic noted in comments Monday afternoon that a lack of government data during the shutdown makes it harder for the Fed to do its job.


[B]ostic also pointed to the partial government shutdown as impacting his expectation for just one interest rate hike this year instead of the two outlined at the Fed's most recent meeting.

What does this mean for traders? Like we said at the top, and will tell you again, we still encourage you to stick to the plan, however nervous the data gap might make you. We know we sound like a broken record, but as many of our proven traders will tell you, we’re not making this stuff up. Volume and participation remain unaffected, and the same should go for you. Just stay aware, stay disciplined, and trust in the plan you’ve set.

Posted by TopstepTrader on January 14, 2019
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