Optimism about possible pro-growth economic policies, including tax reform and deregulation, helped U.S. stock indices finish higher last week, reported Barron’s. It wasn’t all smooth sailing, though. Stocks bobbed up and down as investors’ optimism was weighted by concerns about a possible debt ceiling battle and government shutdown.
CNN offered some insight to the historic economic impact of government shutdowns on productivity:
"The last time the government was forced to close up shop – for 16 days in late 2013 – it cost taxpayers $2 billion in lost productivity, according to the Office of Management and Budget. Two earlier ones – in late 1995 and early 1996 – cost the country $1.4 billion."
For investors, it’s important to distinguish between a shutdown’s potential effect on the U.S. economy and its possible impact on U.S. stock markets. A source cited by The New York Times reported:
"…during all 18 government shutdowns, starting in 1976…the Standard & Poor’s 500-stock index averaged just a 0.6 percent loss over the course of those closures. Early on in shutdown history, investors reacted very negatively. Closures in 1976 and 1977 coincided with 3 percent declines in the [S&P 500].
As investors grew more accustomed to shutdowns, they seemed to become more blasé about them. During the mid- 1990s and the 2013 closure, for instance, stocks actually rose. They gained 3.1 percent during the 2013 stoppage."
Bond investors were relatively calm last week, according to Financial Times. Although, there were signs of "debt ceiling jitters." Yields on U.S. Treasuries that mature in October (when a shutdown may occur) rose on concerns investors might not be repaid in a timely way.
No matter what happens in September and October, keep your eyes on the horizon and your long-term goals.
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