Stocks Stay Strong Despite Government Shutdown

Thursday, October 03, 2013 14:55
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Stocks Stay Strong Despite Government Shutdown

The Wall Street Journal  didn’t run the very postive headline to this post, but it could have.

 

Instead, WSJ went with, "Washington’s Grim Face-Off.”

 
Nonetheless, the stock market's reaction to the government shutdown is a bit suprising. 
 
Politicians and pundits have been throwing around all kinds of scary stuff labout how the shutdown will “crash the economy,”  “throw people out of work,” and “cause a debt default.”

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You’d need to suffering from amnesia to think this shutdown is an aberration in American politics.

 

And, while unsettling, the history of Washington’s playing chicken with the budget and debt ceiling is that partial government shutdowns have not, in reality, created material economic or market dislocations as both sides factions like to suggest as a scare tactic. The market knows this.

 
The market’s reaction to previous shutdowns was summarized earlier this week in Investor’s Business Daily:
“If the government shutters its doors, it wouldn’t be the first time. A research report from U.S. Trust noted 17 such instances since 1976. Shutdowns have been as short as one day to as long as three weeks. Nine of those times, the S&P 500 was flat to up 2.5% over the period of the shutdown.”
Looking past the "crisis" in Washington, some of the most important of the latest economic data have, in fact, strengthened and are key to the strength of stocks.
  • Leading economic indicators both in the U.S. and abroad have picked up.
  • Key US purchasing managers indexes remain very strong.
  • Unemployment claims have broken to the downside and ADP’s September employment figure continued the slow but steady new jobs trend.
  • Household net worth back to trend and hitting new highs. The Fed just released new household balance sheet data.

Please join me for our October 8 webinar for a complete tour of the latest economic and market data, addressing these data point as well as the following:

  • Earnings, P/E multiples and stock prices. Can stocks go higher this year? Next year? And, Wall Street’s latest forecasts.
  • Are record profit margins sustainable?  Analysts are expecting higher-still margins in 2014 from 2013’s record high levels.
  • Fed’s QE taper. What does it mean for the economy and stocks?
  • The Fed is printing money. What does this mean and why does inflation keep dropping instead of surging?
  • The fiscal crisis. CBO just released a new set of federal income and spending

 

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