The signs of fall are upon us: the onset of cooler evenings, slightly shorter days and the turning of leaves. And the new time of year brings the familiar like a new football season and other rituals like Halloween.
But recently, I thought about an important but less noticed pastime of the autumn months, and that is the start of the opera season in many cities across the country. Although I have not attended an opera in many years, it seems to me that recent news events have been quite operatic in their own right and as dramatic as any great piece by Wagner, Puccini or another famous composer.
For example, the United States and Iran have been opening up new channels to communicate and negotiate, punctuated by a phone call a few weeks ago by between the U.S. and Iranian Presidents, after many years of a difficult relationship which has had its own theatrical elements at times. Ironically, this historic event occurred while we are in the midst of our own drama in Washington DC.
Not surprisingly, I am referring to the domestic standoff in Congress that has shut down the U.S. government for the first time in 17 years. The failure in Washington is disappointing, if not a surprise. However, history tells us it is not necessarily a bad thing for investors. The 16 government shutdowns over the past 37 years have not been particularly negative for stock market investors, averaging only a 2% decline for the S&P 500, according to LPL Financial Research.
More importantly, from a longer-term perspective, they preceded above-average returns. The S&P 500 Index has risen 11% on average in the 12 months following the shutdowns, compared with 9% for all periods (see note 1). Notably, in the last government shutdown 17 years ago in late 1995, the S&P 500 rose 21% in the subsequent 12 months (see note 1).
As the government shutdown began on the morning of October 1, stocks actually rose after falling modestly in the preceding days. That reaction makes sense, since selling stocks into short-term political uncertainty has been costly for investors in recent years. Of course, the shutdown is not the only issue facing investors from Washington. We are also approaching a breach of the debt ceiling on October 17, leading to the remote-but-heightened threat of default on some U.S. obligations if lawmakers fail to increase the limit on total U.S. federal government debt.
Fear over the threat posed by the debt ceiling seems well contained at this point. Perhaps this is because the economic and fiscal backdrop in the United States, and especially Europe, is much improved relative to the 2011 episode. While it is good news that the markets have been relatively steady, the market may make the politicians act. The situation bears close watching. As the debate continues, this month’s newsletter focuses on informing you about how to consider your long-term finances and avoid getting distracted by the “show” in Washington, DC.
Like a musical performance, events in the capital will eventually have their own coda, though it’s hard to know the outcome. Regardless of how things play out, the goal of the following information is to help you “tune out” the chaos and create your own beautiful opera as you move toward your long-term personal and life goals:
Looking Backward and Forward on Entitlement Programs
Current budget and debt ceiling negotiations, not to mention last year’s presidential election, have put the spotlight on our nation’s tax policy, deficit, and entitlement programs. Learn about how entitlement money is spent and what actions you should consider if the programs are reformed at some future time. Read more…
Affordable Care Act: What about Your Current Medical Plan?
If the US Government continues with the implementation of the Affordable Care Act, will you need to change medical plans? The answer depends on your situation. Read more and get information about Healthcare Exchanges…
Will Interest Rates Rise this Year?Interest rates for things like mortgages have increased in recent months in spite of the fact that the Federal Reserve Bank has not adjusted its target rates. This article discusses some of the factors behind higher rates and the implications for your investments, especially those that are income-producing. Read more…
What Rate of Return Can Stock Investing Provide?
When planning for future goals, it’s often very useful to make assumptions about your savings rates and potential investment returns in order to chart your journey. However, it is especially important to make sure that your projections are prudent and realistic. Learn about this important aspect of financial planning and how to approach estimating future stock market returns. Read more…
May the fall months bring beautiful music to your personal, professional and financial life! As always, please do not hesitate to contact me at (925) 301-4086 or send me an email at email@example.com if you have any questions about this blog or any other financial topics.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The economic forecasts set forth in this blog may not develop as predicted.
Note 1: This research material has been prepared by LPL Financial.