Why Investors Should Ignore Talk of a Government Shutdown


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So, here we are again, facing the possibility of a government shutdown. Just a week ago we were treated to a long look into negotiations about immigration policy that seemed to be about finding a compromise and ended with the President saying that he would sign whatever bipartisan bill resulted. Then the cameras were switched off and the politicians reverted to type, and it looks like once again, government funding is being held hostage to a single issue.

If those in Congress want to know why they are so unpopular, this is it. The party politics don’t matter much to most people, but to see the entire U.S. government threatened because of an inability to compromise destroys faith in not just the people involved, but in the very system itself. That potentially has serious political consequences, but my purpose here is to assess the market impact, which is by nature more short-term.

So far this morning, the market is relying on the historical evidence and essentially ignoring the threats. We have seen this movie many times before, and the most usual result is a last-minute deal that once again offers temporary funding. Occasionally, such as in 2013, an actual shutdown occurs, but when it does it is usually short and has little effect on the economy.

In the past, that has simply provided an opportunity for investors to buy stocks at a discount. The fact that stock index futures are trading higher this morning suggests that there may be no discount available this time around, but that doesn’t mean that you shouldn’t still be looking to buy.

The reason that threatening a shutdown is so popular among politicians is because in the case of both the governing party and the opposition it plays to their hardcore supporters. The opposition sells it as a principled stand on an issue that matters to them, while the governing party uses it to show that their opponents care only about their pet projects and is quite prepared to sacrifice the American people to get what they want.

The party affiliations may change, but the dynamic is constant.

And so is the market reaction. The fact that the market essentially ignores these periodic displays of political petulance proves above all else something that I have said in these pages many times: The U.S. economy is fundamentally strong and resilient, and continues its relentless path of long-term growth despite, not because of politicians.

The chart for the S&P 500 above looks like it does because the recovery from the recession is ongoing and accelerating. One could argue that deregulation and tax cuts have fueled that acceleration to some degree, but stocks are higher because consumers are spending more, and corporations are making more money as a result.

At some point that will change because it always does, but we are not at that point.

That chart, with new highs every day, is scary, as are the words “government shutdown”, but for investors, and particularly the majority who are investing for the long-term, the only logical thing to do is to follow this morning’s market, put away those fears and ignore the politicians.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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