A Government Shutdown Begins… What does that mean for you and your investments?

A Government Shutdown Begins… What does that mean for you and your investments?

By Nick Clay

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The United States government has begun a partial shutdown after Congress failed to adopt a new budget into place. This is not the first time this has happened, as there have been 17 shutdowns or funding gaps since 1976, but this is the first shutdown in 17 years.

Who will be immediately affected?

Employees of the federal government will feel the sting first, more than 800,000 federal employees face unpaid leave with no guarantee for back pay once the deadlock is over. National parks and museums will temporarily close. Pension and veterans’ benefit checks, visa applications and passport applications will be delayed. Food assistance services and IRS audits are also expected to be disrupted.

Certain members of the military will continue to be paid and the new health care exchanges are also expected to go live October 1, 2013. The health care law, or Obamacare, was again a topic of heated debate leading up to the deadline.

What does the shutdown mean for your investments?

The good news is, that as I write this before the first market open under the shutdown, futures on all US indices are pointing up. We saw a decline in the market to close out the third quarter which I partially attribute to investors pricing in a government shutdown and now it is just business as usual. During most government shutdowns there has been a slight market decline, but between the last two major shutdowns in November 1995 and January 1996 we actually saw the S&P 500 rise 4%.

There will obviously be a lot of eyes and ears on Washington during the coming days as they try to reach a resolution. But the world will continue to spin on its axis and business will continue. The important thing is this is not a time for investors to panic. When the dust settles and a resolution is agreed upon we will still have a much more stable US Economy than we have had in years and an ongoing global economic recovery as well. Any damaging effects to the economy felt by the shutdown would likely mean the Federal Reserve will remain even more cautious as they decide when is best to begin tapering away from their quantitative easing.

In summary, a short term government shutdown is no time for knee jerk reactions, but could actually present a buying opportunity. As always, if you have questions or concerns please feel free to give us a call.

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