The Third Government Shutdown of 2018
A Historical Perspective for Investors
In the days leading up to the December 2018 U.S. government shutdown, stocks turned in their worst weekly loss of the year as the DJIA, S&P 500 and NASDAQ all entered into bear market territory – meaning off 20% from their recent peaks.
In fact, it was the worst trading week for the DJIA since October 2008 and both the DJIA and S&P 500 are on track for their worst December performance since the Great Depression in 1931.
So, what impact might this shutdown have on the stock market and could the shutdown be what finally cools this almost 10-year bull market? History suggests that we just don’t know.
Historical Performance
Since 1976, the U.S. government has shut down a crazy 20 times. And the impact on the stock markets – on average – has been to push the market down a little bit. On average those 20 shutdowns – excluding the three shutdowns in 2018 – the average lasted seven days and the market fell 0.6%. Further:
- Half the time the markets were up;
- The largest decline was 4.4% in 1979;
- The biggest gain was 3.1% in 2013;
- The longest was at 21 days in 1995; and
- The shortest was a single day.
|
Start Date |
End Date |
Length (in trading days) |
S&P 500 Return |
|
09/30/76 |
10/11/76 |
10 |
-3.4% |
|
09/30/77 |
10/13/77 |
12 |
-3.2% |
|
10/31/77 |
11/09/77 |
8 |
0.7% |
|
11/30/77 |
12/09/77 |
8 |
-1.2% |
|
09/30/78 |
10/18/78 |
18 |
-2.0% |
|
09/30/79 |
10/12/79 |
11 |
-4.4% |
|
11/20/81 |
11/23/81 |
2 |
-0.1% |
|
09/30/82 |
10/02/82 |
1 |
1.3% |
|
12/17/82 |
12/21/82 |
3 |
0.8% |
|
11/10/83 |
11/14/83 |
3 |
1.3% |
|
09/30/84 |
10/13/77 |
12 |
-3.2% |
|
10/03/84 |
10/05/84 |
1 |
0.1% |
|
10/16/86 |
10/18/86 |
1 |
-0.3% |
|
12/18/87 |
12/20/87 |
1 |
0.0% |
|
10/05/90 |
10/09/90 |
5 |
-2.1% |
|
11/13/95 |
11/19/95 |
5 |
1.3% |
|
12/15/95 |
01/06/96 |
21 |
0.1% |
|
09/30/13 |
10/17/93 |
16 |
3.1% |
|
Average |
|
7 |
-0.6% |
Source: LPL and FactSet
In recent years, the stock market has shown a remarkable ability to pay little heed to natural disasters, global political concerns and terrorist attacks, but some expect this shutdown to be different.
Economists will suggest that for every week of a government shutdown, GDP growth could shrink by 0.1% - 0.2%, but that is likely to be regained shortly after a shutdown is over. Other economists suggest that a shutdown could drive the U.S. dollar down or push some commodities to rise. Time will tell.
An Advisor’s Biggest Worry
The biggest worry that few people are talking about is this: there will be an immediate impact on the almost 3 million civil servants and their families that won’t receive a paycheck because of this political brinkmanship.
That is a very big worry and one that we should all think about and do whatever we can to help.
Especially at this time of year.
© 2019 RSW Publishing. All rights reserved. Distributed by Financial Media Exchange.
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