The U.S. federal government is on the brink of a partial shutdown if swift action is not taken by lawmakers. Throughout its history, the United States has experienced a total of 21 government shutdowns, with an average resolution time of eight days. Some of these shutdowns lasted only a day, while the longest endured for 34 days. Interestingly, during these periods, the S&P 500 managed to achieve an average return of 0.1%, as stated by Levitt in recent email communications.
However, this time around, investors find themselves facing a multitude of simultaneous risks. These include rising interest rates, the potential reemergence of inflation due to expanded labor strikes, and the resumption of student loan payments, which could dampen spending. As a result, U.S. stocks DJIA SPX COMP are currently on track for a dismal September, with long-term Treasury yields reaching their highest levels in over a decade.
Despite these concerns, Levitt emphasizes that long-term investment plans should not be influenced by fears of government shutdowns. He points out that this is not the first shutdown and will likely not be the last.
As worries regarding a shutdown persist, U.S. stocks opened lower on Tuesday. Moody’s Investors Service has deemed a shutdown to be “credit negative” for the U.S. economy. By mid-morning trading, the Dow industrials had plummeted by over 300 points or 0.9%. The S&P 500 and Nasdaq Composite were also down around 1.2%.
Levitt highlights that on average, the S&P 500 has seen gains following government shutdowns. In fact, positive returns were observed during 12 out of the 21 shutdowns. While there was an increase in volatility at times, it was not consistently observed based on movements derived from Dow industrials returns.