A sudden disruption in Washington has sent government shutdown probabilities skyrocketing, validating Professor Jeremy Siegel‘s latest warning that a once “done deal” has unraveled into a genuine market threat.
The ‘Monkey Wrench’ In Washington
In his weekly commentary released Monday, Wharton Professor Siegel warned that Democrats have “thrown a monkey wrench” into budget negotiations, threatening a new government shutdown.
While markets had previously priced this risk as negligible, sentiment has shifted violently in a matter of days.
Siegel noted that prediction markets swung from implying a less than 10% chance of a shutdown to over 70%. Real-time data from major prediction platforms confirms this dramatic repricing.
Polymarket betting pools indicate an odds of a shutdown reaching 79%, while Kalshi data reflects a similar surge, with probabilities rising sharply to nearly 77% just days before the deadline.
Market Implications: Noise Vs. Fundamentals
Siegel cautions that this renewed volatility “should impede the upward movement in the market” in the near term.
The sudden spike in uncertainty comes at a time when investors were already digesting delays in Supreme Court tariff rulings and awaiting clarity on the Federal Reserve’s leadership race.
However, Siegel emphasizes that this political maneuvering effectively amounts to “noise” rather than a structural economic deterioration.
He points out that despite the headline risks, nothing in the incoming data since December has undermined the economy’s core strength. GDP estimates for the fourth quarter are tracking north of 5%, and recession fears continue to recede.
Looking Ahead
This comes as President Donald Trump warned of a potential shutdown on Thursday last week, but the odds spiked dramatically over the weekend. This surge followed an announcement by Senate Democrats that they intend to block Department of Homeland Security (DHS) funding in response to a fatal shooting involving Border Patrol agents in Minneapolis.
While the immediate threat of a shutdown creates headwinds, Siegel remains optimistic about the broader outlook for 2026.
He argues that the “fundamental trajectory for both the economy and markets remains firmly positive,” driven by a genuine productivity revival and broadening market leadership, regardless of the temporary gridlock in D.C.
Major Benchmarks Advance Over 2026 So Far
The S&P 500, Dow Jones, and Nasdaq 100 indices have risen by 1.34%, 2.13%, and 2.01%, respectively, on a year-to-date basis.
On Monday, the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, closed higher. The SPY was up 0.51% at $692,73, while the QQQ advanced 0.44% to $625,46.
On Tuesday, the futures of the S&P 500, Dow Jones, and Nasdaq 100 indices were mixed.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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