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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