The government may have shut down yesterday.
I say “may” because this is being written a week before you’re reading this. Either way, there are some lessons to be learned.
Let’s be positive and pretend that the government did not get shutdown like it has over twenty times in US history[1] and three times in the last decade[2], and that all the financial concerns in the country and political partisanship has been resolved by the time you read this.
Unlikely, at least the latter part.
This will still be helpful to bookmark when it happens again in the future. If it's out-of-date now, it may not be out-of-date in the future judging by how our nation’s capital functions.
You know by now that I don’t predict the present, but I want to arm you with data rather than all the noise that radiates from your televisions, phones, and tablets.
So, here we go:
Shutdowns are usually short lived. A Global Market Strategist at Invesco notes, “They’ve been resolved, on average, within eight days. Five only lasted a day. The longest lasted 34 days.”[3]
Shutdowns can cause stock market volatility in the short-term, but overall have not negatively affected the stock market much. According to the above chart from Ryan Detrick, during shutdowns the stock market has been relatively even on both the average and median, and 12 months after the shutdown the market has performed very well experiencing double-digit average and median gains.[4]
Shutdowns can cause bond market volatility, but not always. Monica Guerra, of Morgan Stanley, elaborates:
The MOVE Index, which measures bond market volatility, rose 3.8% during the shutdown in 1990 and 7.2% in the 1995-1996 shutdown. However, the volatility gauge fell 12.6% and 14.8% during the shutdowns in 2013 and 2018-2019, respectively…On average, during shutdowns since 1976, the 10-year Treasury yield has fallen 0.59% while its price has ticked up, suggesting that investors favor the safe-haven asset during these periods of uncertainty. What’s more, the government can still pay bondholders during shutdowns, so coupon payments would not be at risk.[5]
Here is something else that might have already happened: a last-minute deal.
Politicians are procrastinators. Pew Research points out that Congress is notoriously late and rarely ever early:
In fact, in the nearly five decades that the current system for budgeting and spending tax dollars has been in place, Congress has passed all its required appropriations measures on time only four times: fiscal 1977 (the first full fiscal year under the current system), 1989, 1995 and 1997. And even those last three times, Congress was late in passing the budget blueprint that, in theory at least, precedes the actual spending bills.[6]
Is there an investing lesson in all of this? I think so.
You may want to ignore the noise and you might not want to manage your financial household like the politicians manage the finances of the nation.
Let’s say it positively:
- Focus on what you can control not on what you can’t.
- Think long-term instead of short-term.
- Spend less than you have.
- Stop procrastinating and start saving, investing, and planning for the future.
Can you believe it’s already October? Nothing gets one in the mood for Halloween horror than those on Capitol Hill acting like hellions.
Our financial decisions are not a dress rehearsal for the next election, they impact our legacy.
We all need to remember that.
------
Sources:
[1] What investors need to know about government shutdowns (https://www.invesco.com/us/en/insights/government-shutdown-market-volatility.html)
[2]Congress has long struggled to pass spending bills on time
[3] See footnote 1.
[5]Would a Government Shutdown Matter to Markets?
[6] See footnote 2.