Beware second-order effects

“GOVERNMENT SHUTDOWN BRINGS VOLATILITY, CAUTION—AND INVESTOR ANGST“—we were quoted today regarding this by InsuranceNewsNet reporter Doug Bailey.

QUOTED EXCERPTS

“Beyond obvious macro risks, beware second-order effects as several economic releases (including Friday’s jobs report) could be delayed,” said Michael Ashley Schulman, Partner, and Chief Investment Officer at Running Point Capital Advisors.

With agencies shuttered, official readings on employment, manufacturing, and inflation will be delayed, leaving investors to rely on alternative sources: private payroll data from ADP, job-tracking firms like Homebase and Indeed, or manufacturing surveys from S&P Global. Even the Federal Reserve, Schulman noted, will be forced to lean on forecasts rather than fresh government data.

The government shutdown vacuum creates volatility.

“Markets are already gaming that scenario, preparing to trade the fog as much as the fundamentals,” Schulman said.

For fixed-income investors, the shutdown usually increases uncertainty about interest rates. Without new data, the Fed is less likely to make substantial changes, which could support some rate strategies. Schulman notes that this environment favors holding event risk, paying attention to duration, and considering yield-curve steepeners if the Fed stays cautious without current information.

“In equities, it argues for lighter beta and more idiosyncratic pair trades, especially where tariffs and oil move the story,” Schulman said. In practice, that means investors may shy away from broad market exposure in favor of specific sectors or companies with clear catalysts.

“Credit probably stays cautious on high yield and more comfortable in investment grade carry,” Schulman explained.

IPOs ON PAUSE
“With the SEC and CFTC partly hamstrung, IPOs are on pause and some oversight slows at the margin,” Schulman noted. Should the shutdown drag on, offerings penciled in for later this year could get pushed into 2026.

Although the government shutdown does not stop all government work, with customs officers and law enforcement still on the job without pay, supply chains can still be affected. Training, audits, and FDA oversight may slow down, causing bottlenecks that impact industries depending on quick approvals.

“Still expect some possible supply-chain slowdowns because non-essential support staff get furloughed,” Schulman cautioned.

ALSO QUOTED in the article was:

🔵Nela Richardson, ADP Chief Economist
🔵Jeff Buchbinder, Chief Equity Strategist, LPL Financial

ADDITIONAL THOUGHTS

The shutdown probably won’t be long enough to effect valuations on most Private Credit and Private Equity funds, may benefit the returns of some Hedge Funds, and coud create some secondary sale opportunities if someone needs quick funds, so private investments manged inside private placement life insurance (PPLI) and private placement variable annuity (PPVA) policies should probably hold up well.

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