The Investment Scientist

Posts Tagged ‘fluctuation

There have been 17 government shutdowns in history. Today I asked my intern Taro Taguchi to analyze the market performances subsequent to shutdowns.

Using the closing price prior to the day of government shutdown as a base line, he found on average, the market rose 0.97% in one month, 2.38% in three months and 13.42% in a year.

If we isolate the 5 most severe shutdowns that lasted more than 10 days, the picture is a bit worse, but not by much. On average the market fell 4.19% in one month, fell .18% in three months and rose 9.63% in a year.

These historical precedents confirm my gut feeling that a government shutdown is really no big deal, as far as the market is concerned.

More worrisome is the upcoming debt ceiling fight. There is no precedent of US default to guide my outlook on this, but the longer the government shutdown lasts, the deeper heels get dug in by both parties and the more likely a default. Nevertheless, I’m still thinking that will also be a storm in a tea cup.

The bottom line is these are issues beyond our control, there is no point worrying about them. If worst comes to worst (ie default,) and the market should drop 20%. That’s actually great because then we can buy shares at a discount!


Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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