Comments on Government Shutdown

Joe Pitzl |

The most obvious form of non-value added stress in markets right now is the potential for a Federal government shutdown. It is dominating the headlines as our elected “leaders” continue to play a game of chicken. We were dragged through the mud on debt ceiling negotiations earlier this year, so we really shouldn’t expect different, I suppose.

The reality is that this would be the third Federal shutdown in the last decade, and 14th since 1981. What may come as a surprise is that the median decline during a market shutdown is 2%, but markets have actually been positive 50% of the time.

During the last shutdown five years ago, Q4 2018, the market declined 19.8% in the months leading up to the shutdown. However, that coincided with the first time the Fed rapidly raised rates, resulting in the housing market and economy grinding to a near halt. My personal opinion is that the rate hikes were more to blame in that instance than the shutdown. All of that decline was recovered shortly after the Fed pivoted and cut rates again.

Following a budget resolution, the markets tend to roar back in rapid fashion. In the 12 months following a shutdown, the median gain is 18.9%.

In another recent conversation, a client was lamenting the vitriol in politics and that it is so much more severe than the past. In my opinion, the real story is the availability of a public echo-chamber provided by social media. There is a very real competition to get attention, and politicians are getting better and better at exploiting these channels of communication.

There have always been extremists on both sides, but in the past, those voices did not get much attention. Today, they can’t be stopped, and random, often anonymous mobs can jump-in and make those voices really, really loud.

But the sobering reality is that we have had dozens of sitting, elected politicians assassinated in this country in the past, including Presidents Kennedy, Garfield, McKinley and Lincoln.

The vitriol has always been there…the channels just didn’t exist for us to hear about it like today. We need to develop better personal filters.