The government shutdown. It was a topic of discussion over the holidays which inevitably lead your family down the political “debate” rabbit hole we all vehemently try to navigate away from. Although your brother in law no longer wants to talk to you, you may have other concerns on your mind as well. If you’re anything like me, you are wondering what this means for your positions and what is effected.
On average, shutdowns near 6 days, with the longest being 21 days in 1995. A historical view of the effect on stocks has revealed little movement and generally displays flat trading.
A look past 1981 reveals a promising story as returns have exceeded 2% after government shutdowns. A further look at previous shutdowns conveys a message of confidence for some investors as the outcome is not always negative. It seems that volatility increases during such times, but we haven’t always seen lasting impact. Investors seem to pay less attention to this and more to economic conditions that may be in play during such an event. With investors coming out of a rocky end to fiscal year 2018, many questions have arisen from this shutdown. One of the more prominent questions is how the IRS will handle this shutdown and whether it will extend into filing season. Currently tens of thousands of employees of the IRS are furloughed and it is speculated that the IRS may request they work without pay (potential for backpay) if the shutdown continues into the height of filing season. This would inevitably impact peoples returns and if you’re like me you plan on using anything you might get back to strengthen your positions. A list of other things impacted can be found by clicking here.
Government shutdowns seem to have little impact on the market and recently have seen a nominal upside at their conclusion. Recent evolvements have shown investors that the concern isn’t with the shutdown and rather with various economic conditions and tensions.
Although the market seems to have had little concern with shutdowns, this isn’t to say budgetary concerns are of little concerns. 2011 saw a 6.7% drop on the S&P 500 due to tensions over the debt ceiling and gridlock of congress. This leaves investors with an unclear view of where this will take us, but we can conclude that the shutdown itself will have little impact on our positions unless it is held out longer. The primary coverage we have taken a look at is largely guided and determined by the FDA. As you may have noticed with the BMY FDA indication expansion announcement yesterday, the FDA is still running and funded. The real threat to your portfolio isn’t in the shutdown its in the various economic questions investors are asking. With Apple communicating a miss on sales, investors are eager to find safe havens from this tumultuous market. According to previous shutdowns, your portfolio will not be negatively impacted unless it is held out to have economic impact and or other tensions arise which may expose pain points on various industries.