Major averages were lower Friday on mixed volume, though the NASDAQ Composite managed to recover some of its loss. Futures are down as the House and the Senate continue to argue over issues as a government shutdown grows closer. If they cannot agree by the Tuesday morning deadline, the government will shut down for the first time in 17 years. From November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996 the U.S. government was shut down as a result of a budgetary impasse between Congress and the White House. The major markets actually managed minor rallies during these two brief periods.
There have been 17 government shutdowns since 1976, ranging in length from one to 21 days. None has caused a market meltdown. The average decline in the S&P 500 during a shutdown lasting 10 days or more is about 2.5 percent. For shutdowns lasting five days or fewer, the average decline is 1.4 percent.
Thus while a government shutdown sounds scary, history has shown it has minimal impact on the general markets. Obama disagrees, saying the threat of a shutdown already is having "a dampening effect on the economy." The president also again urged Congress to raise the federal debt ceiling and said he would not negotiate on the issue. Failing to act on the debt limit would be "far more dangerous than a government shutdown," Obama said then continued, "It would be an economic shutdown, with impacts not just here but around the world." History says otherwise.
Investors should be alert to potential buying opportunities as leading stocks pull down into logical areas of support, in our view.
Virtue of Selfish Investing members have been and will continue to be apprised of such opportunities in the real-time reports we send out.