The Standard & Poor’s 500 Index has risen 11 percent on average in the 12 months following a government shutdown, according to data compiled by Bloomberg on instances since 1976. There have been 17 government shutdowns since 1976, with five of them occurring within three months of each other, according to data compiled by Bloomberg.
The last time there was speculation about a U.S. government shutdown was in August 2011, when the S&P 500 fell more than 11 percent in three days. Stocks tumbled during the stalemate between President Barack Obama and Congress over whether to raise the debt ceiling and S&P stripped the U.S. of its AAA credit rating during the month.
The losses were later reversed over the next few months, as the Federal Reserve pledged to hold the benchmark interest rate near zero and maintain bond purchases to support the economy.
Although analysts’ have reduced earnings estimates for Q3 for the S&P 500, they still expect a significant improvement in earnings growth in the fourth quarter of this year (current quarter). Earnings growth is expected to be up 10% in the fourth quarter vs. 3.2% growth for the third quarter. This should add support to the stock market after the debates in Congress are resolved.
Hopefully, when all of the silly games by Congress have concluded, the markets will rebound in the coming months, assuming earnings growth in the fourth quarter is strong.
Too bad this wasn’t an election year…
