The unprecedented ousting of Kevin McCarthy from the U.S. House speaker’s chair last week sparked a round of understandable anguish for investors and market analysts who saw yet more evidence of U.S. political dysfunction.
“We do not expect that this specific event will destabilize markets, but the dysfunction in Washington may add to eroding confidence in U.S. exceptionalism,” said Carl Ludwigson, managing director at Bel Air Investment Advisers, in a note. The week ahead, however, also promises more political drama as divided House Republicans attempt to choose McCarthy’s successor. Given McCarthy’s fate, that successor is seen as less likely to reach across the aisle. Oddsmakers now see an increased risk of a government shutdown when the stopgap funding measure runs out next month.
Also read: Wall Street worries U.S. could lose last AAA rating as political chaos fuels government-shutdown fears “It’s a problem and it’s a big problem, but it’s not a new problem, so it’s hard to link the meta issues that have been building for not months or years but really decades to the current market dynamic,” said Christopher Smart, founder and managing partner of Arbroath Group, a consulting firm.
But an implicit backdrop of political dysfunction “adds to the uncertainty that investors attribute to different economic data and probably makes these selloffs more extreme and volatile than they would have been with these less predictable political patterns,” he said.