The S&P/ASX 200 Index (ASX: XJO) is enjoying its strongest run in weeks.
At time of writing in late morning trade on Thursday, the benchmark Aussie index is up 1.1% at 8,943.3 points. If the index can hold these gains by close, it will mark the best day for investors since 21 August.
And it's happening as the world digests the fact that the United States government has shut down non-essential services amid an ongoing budget impasse in the US Senate.
As for how the biggest three ASX 200 stocks are faring today, Commonwealth Bank of Australia (ASX: CBA) shares are up 1.6% at $169.77 each; shares in mining giant BHP Group Ltd (ASX: BHP) are up 1.8% at $42.22 apiece; and CSL Ltd (ASX: CSL) shares are up 2.9%, changing hands for $204.60 each.
The gains we're seeing in the Aussie market come after the S&P 500 Index (SP: .INX) closed up 0.3% overnight, marking another new record high. Tech stocks also rallied, with the Nasdaq Composite Index (NASDAQ: .IXIC) closing up 0.4%.
So, why are investors shrugging off the US government shutdown?
Here's what the experts are saying.
Why the ASX 200 and US stocks are rallying
Alfred Tang, head of trading at Webull Securities Australia, noted that while most US shutdowns only last a few days, during US President Donald Trump's first term, "the US government shut down for a record 35 days".
Tang noted:
However, during that time S&P 500 volatility was nothing out of the ordinary. US markets closed higher by the time the shutdown ended, and the ASX 200 closed 8% higher by the time negotiations ended and a budget was passed.
Sounding a note of caution, Tang added:
Traders and investors should remember that past performance is no guarantee of future returns – we are dealing with an incredibly hostile US Congress, and as key government departments begin to be forced to walk off the job, traders would be wise to expect the unexpected.
Commenting on the strong run in US stock markets, and by connection the big lift on the ASX 200 today, Bloomberg strategists said:
Late-in-the-year seasonality favours stocks as the dominant US asset, while the dollar has been doomed to be a laggard. This year is likely to follow that pattern, even as a US shutdown adds a new factor into the mix.
One area of concern is that the shutdown of services in the world's biggest economy could delay the release of critical economic data that the US Federal Reserve depends on to make its interest rate decisions.
Though Atakan Bakiskan, US economist at Berenberg, believes the central bank will still cut US interest rates by 0.25% this month regardless.
Bakiskan said:
We believe that even if the September nonfarm payroll report cannot be published before the Fed meeting, officials will have enough information about the labour market to deliver another 25 basis point 'insurance' cut at the October meeting.
And we'll leave off with this last piece of advice for ASX 200 and US stock market investors.
Lauren Goodwin, economist at New York Life Investments, said (quoted by Bloomberg), "Investors can operate under a simple rule of thumb: the longer a shutdown lasts, the greater its effects on consumer confidence, economic activity, and market outcomes."
