On Friday, the S&P 500 index posted its sixth decline in seven sessions amidst ongoing concerns pertaining to the budget impasse and debt ceiling debate in the United States. Over the weekend, the prospect for a quick resolution faded even further as Congress voted on a short-term funding bill that would also delay the so-called Obamacare health reforms for one year, a non-starter for Senate Democrats. Analysts are now pegging the probability of a shutdown at 99 per cent as the clock ticks down to the deadline of midnight ET tonight, the end of the fiscal year.
Since 1976, the U.S. government has shut down on 17 different occasions, the effect of which has not been positive for equity benchmarks. The S&P 500 has declined by 0.88 per cent, on average, during a shutdown event. The result is exacerbated if the shutdown occurs at the end of the fiscal year, as we are witnessing now. The large-cap benchmark has declined by 2.26 per cent, on average, into the month of October as the budget is negotiated. The good news is that stocks typically recoup most, if not all, of the losses accumulated during the shutdown over the course of the month that follows the resolution; until then, equity market weakness should be expected.
Don and Jon Vialoux are the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. They are also research analysts at Horizons Investment Management, offering research on Horizons Seasonal Rotation ETF (HAC-T). All of the views expressed herein are their personal views although they may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment. Horizons Investment is the investment manager for the Horizons family of ETFs. Daily reports are available at http://www.timingthemarket.ca/ and http://www.equityclock.com