Investors yawn at latest U.S. government shutdown squabble

(Reuters) - Investors have shrugged off the latest threat of a federal government shutdown, saying they are not worried about a major pullback in shares even if U.S. lawmakers fail to strike a deal.

If history is any guide, a shutdown would not be enough to knock the market off course. And investors have already shown they can ignore political risks at home and abroad, focusing instead on earnings and economic data to drive shares to record highs.

Republican leaders in U.S. Congress scheduled a vote on Thursday for a proposed temporary extension to fund government operations in the hope of getting it to President Donald Trump's desk before Friday's midnight deadline.

Wall Street strategists were hopeful a deal would be reached in the nick of time. Congress on Dec. 21 averted a shutdown just one day before federal funding was due to expire, sending Trump a bill to provide just enough money to keep agencies operating through Jan. 19.

But even if a shutdown does occur, strategists expect investors to take it in stride, given the muted reaction during the three past shutdowns that have occurred when equity markets were open.

For a graphic showing S&P 500 performance during U.S. government shutdowns, see: http://tmsnrt.rs/2De4sDS

Shutdowns happen when Congress does not approve a budget or a continuing resolution to keep the government operating without a budget. The first of these was in November 1995 and the last was in October 2013.

And even with the S&P 500 Index at near-record highs after rising 19 percent in 2017, investors were skeptical the reaction to a 2018 shutdown would be any different.

"The market impact is likely to be limited simply because the U.S. Treasury still has enough money to pay its bills through March," said Peter Donisanu, global research analyst for Wells Fargo Investment Institute in St. Louis. "We'd see pullback in markets as buying opportunity."

While he put the chance of a shutdown at 50/50, Robert Phipps, director at Per Stirling Capital Management in Austin, Texas, said he was not making any changes to his portfolio to protect against a shutdown.

"The market reaction would be very short-lived," said Phipps.

Investors have been buying equities because of strong economic data and earnings growth, according to Phipps, who pointed out they have been mostly ignoring political turmoil, including the specter of nuclear war between the United States and North Korea and the investigation of potential links between the Trump campaign and Russia.

Even the S&P 500's weakest shutdown performance still meant a slight gain. The benchmark index rose 0.06 percent during the Clinton-era shutdown between Dec. 16 1995 and Jan. 5 1996.

Some strategists warned that the age of the nearly nine-year-old bull market makes it vulnerable to some volatility, but even so any disruption would likely be brief.

"It doesn't take much to be a catalyst for higher volatility," said Peter Cecchini, managing director and chief market strategist at Cantor Fitzgerald in New York.

"If there's an unexpected impasse I think you can get a 2.5 percent to 5 percent pullback, but it'll be a temporary bout of volatility."

(Reporting By Sinead Carew, April Joyner, Chuck Mikolajczak and Lewis Krauskopf in New York, Amanda Becker, Kevin Drawbaugh in Washington D.C.; Editing by Alden Bentley and Meredith Mazzilli)