How Could a DC Shutdown Impact Stocks? Let's Look Back at Other Full Shutdowns.
Let's take a gander at the charts from 1995 and 2013 to see what could be ahead for us.
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Long time readers know I have a very strong contrarian view. There are times I need to fight it because there are some folks who when they say white my immediate thought is black. With that as background, I ask you, how many times did you hear someone say on Monday that the market doesn’t care about a government shut down? I must have heard it at least a dozen times. And that has my contrary juices going.
I grant that it is true, the market hasn’t cared about a government shut down. This particular one, should it happen, is said to be a full shut down as opposed to a partial one. There have been two full shutdowns, one in 1995 and one in 2013. So naturally I had a look at them.
In 1995 we rallied into the shutdown which was mid November. The two months prior saw the market go sideways. While the shut down lasted only a few days, notice that the market did not run away; that happened nearly two months later, in January 1996.
The 2013 period is also interesting because the shutdown occurred in mid October and you can see the market lifted off and never really looked back. But now take a look at what it did heading into the shutdown: it spent the three weeks leading up to it correcting.
What is different today is that there has been no sideways move in the S&P, there has been no correction, there has been a relentless grind upward.
And if that wasn’t enough I kept hearing folks note that the ‘seasonality’ for the fourth quarter is quite bullish. Again, the fourth quarter is often, not always, quite positive, but I grant you I rarely care about seasonality as I have noted if there is a seasonal pattern that works 95% of the time you can be sure if I play it, I will discover the 5% of the time it doesn’t work.
Seasonality factors did not work this summer. In July everyone talked seasonality (for a market pullback) which did not occur. Remember I kept wishing folks would talk about a scary September but we barely got a pullback for them to fuss. But that didn’t stop the seasonality folks from noting how bad September usually is. So now I guess seasonality will work because it hasn’t done so all year!
In any event the indicators did not change on Monday. And the long talked about broadening out still has not occurred as the McClellan Summation Index has been heading down since July. Oh, wait, there’s the seasonality!
It still seems to me the market just rotates from one group to another.
