Thoughts from our Domestic Equity Team
Today the Federal government has shuttered due to the inability of Congress to agree on a spending bill. By itself, we do not view this as being a significant issue. In fact, there have been 17 government shutdowns since 1976, and usually they were short and had muted market impact. The most notable was the three week shutdown in 1995, which provided a slight drag on GDP growth during that quarter but in general its effects were only temporary. The current shutdown has the potential to be more costly than historical precedent both because it has the potential to last for weeks and because it informs the coming debt ceiling debate which is likely to have a greater market impact. Overall though we believe that the nation’s political leadership will find a way in the coming weeks to resolve their differences on both issues, consistent with our experience in August 2011 and January 2013. Any market decline in advance of the debt ceiling impasse may well be limited since we think that investors have become accustomed to political brinksmanship. Indeed, U.S. equities are advancing even on the first day of the shutdown. The market has been strong overall this year, and we believe it will resume its upward bias following a resolution of the current debate in Washington, driven by the same factors that have supported it thus far: (1) slow and steady U.S. economic growth; (2) accommodative monetary policy from all the major central banks; and (3) encouraging signs of improvement in the major international economies including Europe, China and Japan.
Submitted by: Jason Benowitz, CFA
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