Today’s declines were not unexpected: history reveals only an even chance of further gains on the day following four straight advances. Hence, we ought not to blame the Congressional stalemate.
Yet the uncertainty of what might happen deserves attention. Today’s diagram considers the last time the government operated without a budget in 1995; it resulted in two shutdowns. They happened in November and again in December, with the latter lasting into early January 1996.
We have plotted the daily S&P500 close as a proportion of the first January close in 1995 and 2013. This comparison then is net of the absolute price differecnes in these two years.
Quite surprisingly, however, the price paths of these two far-apart years are almost parallel. Nevertheless, this year’s declines around the September 30 end of the government’s fiscal year, are sharper than in 1995. The fact that now the government iss shutdown, whereas in the earlier episode, the feds were not cut-off till mid-November is one way to explain this difference.
Overall, though, it seems reasonable to infer that the 1995 budget difficulties were short lived, that stock prices withstood the negative impacts, and suffered only temporary losses.
Yet, with the interest rate on the Ten Year Treasury rising again, closing at 2.72 percent, it is clear that the outlook of the basic financial market is far from optimistic.
DJIA -.87 percent
NASDAQ -.56 percent
S&P500 -.71 percent
