Shutdown and Share Buybacks

Sixteen in forty-five years! Indeed, this is the sixteenth government shutdown since 1981. As this statistic shows, a federal budget paralysis is nothing exceptional, and the current deadlock concerns the extension of tax credits related to health insurance. However, the extreme political polarization affecting the United States makes it more difficult to reach a compromise (requiring a 60-vote majority in the Senate). The current configuration therefore has a particular character, as it occurs at a time when the labor market — the foundation of household income and therefore consumption — is showing signs of weakening.

In practice, around 750,000 federal employees are expected to be furloughed, according to the CBO*, due to the closure of so-called non-essential services. Among them is the BLS*, which collects and publishes the monthly employment report. In the absence of this publication in early October, investors had to rely on alternative surveys to gauge the slowdown in the labor market. The delay in the release of “hard” data (as opposed to sentiment surveys) makes the Fed’s job even more complicated. Meanwhile, the opportunistic stance of the federal administration remains unchanged, as it threatens to lay off thousands of workers in an attempt to pin the blame for this institutional paralysis on the Democrats.

Unsurprisingly, this umpteenth budget deadlock raised investors’ cortisol levels and, consequently, pushed up the price of gold. The yellow metal, already among the top-performing assets before the shutdown, benefited from this added uncertainty to cross for the first time the symbolic $4,000 per ounce threshold. The ductile metal has also seen renewed demand from central banks — notably in China — following the summer pause. As a result, Goldman Sachs has updated its forecasts and now expects a price of $4,900 by December 2026.

Moving from macro to microeconomics, another type of shutdown risk seems to loom — this time concerning the quarterly earnings publications of U.S. companies. In a spirit of deregulation, the U.S. administration intends to ease financial reporting constraints so that companies can focus on their long-term goals. In this regard, the comparison with Europe — where quarterly reporting is not mandatory — is relevant: roughly 50% of companies report quarterly, while the other half report semi-annually, a ratio that has remained fairly stable for the past decade. Goldman Sachs, once again, studied both groups and found no correlation between reporting frequency and corporate cash flow allocation decisions among investment, dividends, debt reduction, and share buybacks.

On this last point, U.S. corporations have announced record buyback amounts this year, thanks to resilient profits: about $950 billion, compared to an average of $644 billion over the past three years — representing 40% of the operating income of S&P 500 companies. At the sector level, technology and financials account for more than 60% of total buybacks. In Europe, where earnings have stagnated this year, the volume of buybacks has plateaued for several quarters, representing only 15% of operating income (with one-third coming from the financial sector).

Historically, most of the economic impact of a shutdown** has been recovered once it ends. Under these conditions, could the current episode trigger a consolidation in equity markets, even though they have already defied the historically unfavorable seasonality of September? A study of past budget impasses shows no consistent market behavior that could guide investors. Meanwhile, the betting website Polymarket currently shows a 50% probability that the shutdown will last beyond November 12, leading investors to turn their focus to quarterly earnings releases.

In this regard, the earnings season that has just begun will need to confirm growth expectations, particularly in the U.S. (+6% expected by consensus for the quarter and 11.5% for the year). It will also be an opportunity for corporate leaders to discuss 2026 prospects, as investors anticipate another year of significant earnings-per-share growth on both sides of the Atlantic (+12.3% in Europe and +13.9% in the United States). Let’s make the most of the insights from this earnings season — it may well be one of the last in the U.S.

* CBO: Congressional Budget Office
** BLS: Bureau of Labor Statistics
*** According to Brookings, each week of government shutdown costs approximately 0.1 percentage point of annualized GDP growth.