{"id":42365,"date":"2013-09-26T05:36:06","date_gmt":"2013-09-26T09:36:06","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=42365"},"modified":"2013-09-26T05:36:06","modified_gmt":"2013-09-26T09:36:06","slug":"dont-fret-a-government-shutdown-stocks-wont","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/09\/26\/dont-fret-a-government-shutdown-stocks-wont\/","title":{"rendered":"Don\u2019t Fret a Government Shutdown (Stocks Won\u2019t)"},"content":{"rendered":"

By WallStreetDaily.com<\/u><\/a> <\/p>\n

At this point, we might as well relocate the New York Stock Exchange to Washington, D.C.<\/p>\n

Why? Because instead of focusing on individual economic and corporate fundamentals emanating from the financial center of the world, investors can’t stop obsessing over policy decisions being made in our nation\u2019s capital.<\/p>\n

For weeks, investors fretted over whether or not the Federal Reserve would start tapering its bond purchases.<\/p>\n

And now?<\/p>\n

They\u2019re panicked (and paralyzed) by the possibility of a government shutdown, thanks to the latest partisan impasse on the budget and debt ceiling limit.<\/p>\n

Case in point: Stocks entered Wednesday on a four-day losing streak – determined to extend it to five – as every major market index opened to the downside.<\/p>\n

Fear not, though. We’ve been here before. As for the latest political impasse, it promises to be no different. (Sorry speeders. Police will still be on active duty – and using radar – during any government shutdown.)\u00a0<\/a><\/p>\n

Here\u2019s proof – and, more importantly, how we should<\/i> be responding\u2026<\/p>\n

All Bark, No Bite<\/b><\/p>\n

While politicians on both sides of the aisle desperately want us to fear the impact of a government shutdown starting October 1, we shouldn\u2019t.<\/p>\n

Why? Do you remember the fiscal cliff<\/a> fears from last December?<\/p>\n

For weeks, politicians uttered dire predictions about the debilitating impact of massive tax hikes and draconian spending cuts. A deal was struck at the last minute. No nasty side effects materialized. And, sure enough, stocks tore out of the gates in 2013 as if nothing had happened.<\/p>\n

In short, the fiscal cliff was \u201ca bunch of sound and fury signifying nothing,\u201d says Jeffrey Saut, Chief Investment Strategist at Raymond James. Indeed!<\/p>\n

As for the latest political impasse, it promises to be no different.<\/p>\n

\u201cIn spite of all the brinkmanship being talked about\u2026 there will be a deal, and then we will move on,\u201d says Stephen Massocca, Managing Director at Wedbush Equity Management.<\/p>\n

I couldn\u2019t agree more. Not only does recent history back us up, so does the longer-term data.<\/p>\n

A History Worth Mentioning<\/b><\/p>\n

While a government shutdown might sound like a rare event, it\u2019s not. In fact, we\u2019ve experienced a total of 17 since 1975. In other words, politicians have a history of extreme discord.<\/p>\n

By the same token, politicians also have a history of reaching a compromise (quickly) when there\u2019s no time left to grandstand for their respective parties.<\/p>\n

You see, shutdowns rarely last very long. Only eight have lasted more than three days. And the average shutdown duration is only 6.4 days.<\/p>\n

What if we\u2019re in store for an outlier this time? Statistically, it\u2019s possible<\/i>. But there\u2019s no real reason to worry.<\/p>\n

For one thing, credit default swap (CDS) prices for U.S. Treasury notes aren\u2019t flashing any legitimate warning signs.<\/p>\n

According to Bloomberg<\/i>, CDS prices trade at about 23 basis points, compared to an average of 41 basis points over the past three years. If a shutdown were going to be particularly bad for the economy, CDS prices would be trending higher.<\/p>\n

Also, we can\u2019t overlook the fact that the Fed has our back.<\/p>\n

You\u2019ll recall, at the September 18 news conference, Fed Chairman Ben Bernanke revealed part of his reason for not tapering, when he said, \u201cUpcoming fiscal debates may involve additional risks to financial markets and to the broader economy.\u201d<\/p>\n

Translation: I\u2019m here to paper over any damage politicians do by being stubborn and creating a protracted shutdown.<\/p>\n

Above all else, though, we shouldn\u2019t fear a government shutdown, because stocks ultimately don’t.<\/p>\n

Stocks Just Don\u2019t Give a Darn<\/b><\/p>\n

During the last two government shutdowns, the stock market didn\u2019t even flinch.<\/p>\n

In 1995, the S&P 500 Index actually rose<\/i> 1.3% between November 13 and 19. And from December 15, 1995 to January 6, 1996, the Index eked out a 0.1% gain, according to Bespoke Investment Group.<\/p>\n

The only thing that did<\/i> happen? \u201cVolatility did pick up during – as well as after – the shutdown,\u201d says Bespoke.<\/p>\n

In other words, temporary buying opportunities materialized in the midst of the political negotiations. And that’s instructive.<\/p>\n

It means we should treat any pullbacks on worries over the current impasse in Washington as a time to buy.<\/p>\n

Chris Hyzy, Chief Investment Officer at U.S. Trust, agrees. \u201cAny market drawdown would be temporary in nature,\u201d says Hyzy.<\/p>\n

Bottom line: The biggest threat to this bull market isn\u2019t<\/i> Washington. A government shutdown sounds much scarier than it promises to be. If anything, it represents a compelling time to put new money to work in the stock market.<\/p>\n

And based on the legislation being considered to avert the October 1 shutdown, we might get another such opportunity before long. (It only funds the government through November 15.)<\/p>\n

But don\u2019t worry. I\u2019ll serve up a friendly reminder to be greedy when others are fearful (again), as that deadline draws near.<\/p>\n

Ahead of the tape,<\/p>\n

Louis Basenese<\/p>\n

The post Don\u2019t Fret a Government Shutdown (Stocks Won\u2019t)<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

Article By WallStreetDaily.com<\/u><\/a><\/p>\n

Original Article: Don\u2019t Fret a Government Shutdown (Stocks Won\u2019t)<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com At this point, we might as well relocate the New York Stock Exchange to Washington, D.C. Why? Because instead of focusing on individual economic and corporate fundamentals emanating from the financial center of the world, investors can’t stop obsessing over policy decisions being made in our nation\u2019s capital. For weeks, investors fretted over … <\/p>\n

Continue reading “Don\u2019t Fret a Government Shutdown (Stocks Won\u2019t)”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-42365","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/42365","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=42365"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/42365\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=42365"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=42365"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=42365"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}