FINANCIAL FOCUS
The Shutdown
In this installation of Financial Focus, we will discuss the topic of “Government Shutdowns.” As always, we will provide some education and commentary for the inexperienced and/or uninformed.
In Chapter 1 of our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), we mention “news and black swan events,” (including Government Shutdowns) that often effect the markets on a larger than normal scale. Although it is important for the health of your portfolio, and your mind frame, to stick to your system during these events, it is normal to experience nervousness while it persists. Some of these events will cause violent short-term reactions to the market, but rarely have long-term effects.
“The Government Shutdown” in the United States is the latest “event” that has grabbed the attention of investors. Though it has not significantly affected the equities markets to date, the longer it lasts, the more it will stress the economy, which could drag down industries including Consumer Discretionary, Retail, and Real Estate.
Historically, however, government shutdowns have resulted in higher markets in the short, intermediate, and long term. Since 1976, the S&P 500 has seen gains 91% of the time (20 out of 22 times) 1 year into the future. The average gains are as follows…
1 month – 3.1%
3 months – 5.0 %
12 months – 12.3 %
It is extremely important to realize that any investment, especially in the equity markets, is ALWAYS vulnerable and can change at any moment. These figures are encouraging, though this may end as the longest shutdown ever, so be cautious not to jump “all-in” when it finally ends.
The longer the closure persists, the more likely economic categories including GDP, jobless claims, airlines, and retail spending, to name a few, will be incomplete or unavailable. The large number of current corporate layoffs, combined with government workers off the job, will certainly take a toll on consumer spending, and workplace efficiency (like airports). Program freezes, litigation, and consumer confidence may take a while to sort out as well, which may delay the turn to the positive, so have patience with investments.
In addition, the Federal Reserve interest rate policy decision on December 10 is now in question, as the lack of information will cause a “freeze” until more reports are available. The market will likely find this unfavorable, potentially setting the stage for more inconsistent price action in the short-term.
For additional discussions and education, please continue to visit our BLOG section here on ASTRO-FIN, where we provide periodic updates on a variety of topics.
***As always, this information is not intended to be financial advice, or any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of current economic conditions.
