Investors Advised Not To Panic
By Ken Mahoney
The US government has been reopened – for now – but we might be back in the same place in three weeks.
The protracted, 33-day U.S government shutdown, made investors anxious, though we did not experience major market turmoil.
While 800,000 federal workers were without pay, some government services remained operational, including parts of the Internal Revenue Services (IRS) and the Securities Exchange Commission (SEC). Most financial services remained open, so there was not a direct impact to securities trading and the stock markets remain open.
Historically, a government shutdown does not significantly affect the markets.
Historically, a government shutdown does not significantly affect the markets. From 1977 to today, there has been 18 government shutdowns and the average return on the markets over the course of these shutdowns is 0%. In more recent years, the markets have actually posted a positive return over a shutdown period, the latest coming in January 2018 when the market was up 04% following a two-day shutdown over immigration policies.
You may ask, why is this? Well, as educated investors we like to invest and plan for the long term, looking to accumulate positive returns ready for our retirement. As a result, these short-term blips have little effect on our mindset towards our buy and hold strategy.
This is not to say a government shutdown is completely irrelevant to the markets. During this shutdown, we missed reports on 24 economic indicators, and this caused uncertainty with investors as we remained unsure of expected results, estimates and data points the markets like to track. It is important the issues inside the White House are resolved appropriately, and for longer than a three-week stopgap.
So, what should investors do? Well, the first thing would be not to panic!
Of course, there is a possibility that companies or sectors that rely on government revenue, like aerospace, defense and IT could experience a slight drop in the short-term but with high levels of volatility thanks to a variety of issues, we like to advise investors to take advantage of these opportunities and use the shutdown to your benefit. Solid large-cap growth stocks that may have experienced a downturn thanks to the shutdown, perhaps because they are a construction company waiting for approval for contractor budgets, or airlines unable to add to fleets, we want investors to see through this mist and look to pick up shares at a cheap entry point.
The muted market reaction to the government shutdown highlights that as investors we are more concerned with fundamental issues, such as the Federal Reserve’s movements and corporate earnings. However, with the US economy already losing $3.6 billion, and a further $1.2 billion to come off US GDP every week the shutdown continues, it is only matter of time before the markets must take notice and the repercussions will begin to unfold.
Investor, FOX Business contributor, WHUD radio host, author of 7 books including Not Your Father’s Retirement and licensed financial advisor for more than 27 years, Ken Mahoney is the CEO of Mahoney Asset Management. To get a free copy of the e-book, call 845-371-0101 or email ben@mahoneygps.com