When markets face turmoil, the media flashes fear-driven storylines. That’s what sells.
Finding reasons to explain down moves is a tale as old as time… Just don’t fall for the trap.
The latest bear-infused cocktail is the looming debt ceiling. If an agreement isn’t passed by October 1, the government will undoubtedly shut down.
At first glance that may seem like a very big deal. After all, a non-functioning government could lead to all kinds of negative issues:
- Millions of federal employees could face payment delays.
- Some federal offices could close.
- And there could be increased market volatility.
Some pundits may even point to the latest drawdown in the markets as evidence that NO DEAL is possible.
Since August 1, the S&P 500 has fallen:
Source: YahooFinance
I can’t offer any guidance on whether a deal will be struck.
BUT what I can do is offer something likely more important: Historical perspective.
At TradeSmith we don’t seek to scare you… but to prepare you. If you’re worried about your stock portfolio heading into this potential shutdown, I’ve got you covered.
Instead of opining on the latest media buzzwords, let’s see the PROOF.
Data Tells The Story
Since 1978, we’ve had 16 government shutdowns that’ve lasted at least a day. The average length of time a shutdown has lasted in those instances is 12 days.
So, prepare yourself… we could be shutting down for a week or longer.
You may be concerned about your stock positions. BUT history says you should take any shutdown in stride.
Over the past 40+ years, beginning on the first day of a shutdown, the S&P 500 has gained 4.2% in the 3 following months.
6-months later, stocks lift 9.7%.
12-months later, stocks fly 16%!
If you’re feeling heartburn over the pending shutdown, let it go. History paints prior episodes with a bright green brush.
This brings me to a bigger theme that I brought to your attention a month ago: September weakness preludes big lifts in Q4.
The September doldrums have been commonplace in the past three decades. The media knows this setup all too well. That’s why they feed the bearish narratives in September.
Since 1990, September falls an average of .8%, spilling over into Q4, which then sees stocks ramp up from October through December.
Check it out:
This should bring a smile to your face.
HOWEVER, the fun doesn’t stop there. Pre-election years like 2023 are a powerful subset of this seasonal shift.
Since 1990, pre-election years have kicked off a monster rally beginning in the fourth quarter.
October dazzles with a 4.4% average gain for the S&P 500. December caps off the quarter with a 3.1% rally:
As I prepared you then for September shenanigans… I’m preparing you now for better days ahead into yearend.
The government may indeed shut down… and history says that’s OK. Just don’t shut down your portfolio.
The evidential proof shows you’ll regret it.
— Keith Kaplan
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Source: TradeSmith