OppChart: What Does the Shutdown Mean for Markets?

S&P 500 Index Performance During Prior U.S. Government Shutdowns

Source: Ned Davis Research, 9/30/13. The chart shows the median performance of the S&P 500 Index during U.S. Government shutdowns from 1976 to present. Index definitions can be found at the bottom of this post. Past performance does not guarantee future results.

With the first government shutdown in over 17 years underway, investors may be wondering what this may mean for financial markets. As you can see in this week’s OppChart, U.S. equity markets have historically sold off modestly during government shutdowns only to rebound in subsequent weeks. Of course each government shutdown is different, and the current one is complicated by the issues of the Affordable Care Act and the looming debt ceiling, which may keep volatility elevated. But, as I mentioned in my initial reaction to the news of the shutdown, this time is different for other, encouraging reasons: we have an improving U.S. economy, shrinking U.S. federal deficits and debt-to-GDP ratios, continued Fed asset purchases, a more stable Europe, and a growing Japan. I believe, ultimately a deal will pass, but we expect to see a pickup in volatility in the near term, and would be selective buyers of equities on weakness.

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The S&P 500 Index is a broad-based measure of domestic stock market performance. The index is unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance does not guarantee future results.

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