With parts of the federal government closed amid a test of wills in Washington, some investors fear that the stock market will suffer. Maybe. But history suggests otherwise, according to Sam Stovall, chief investment strategist at CFRA.
The S&P 500 “essentially went nowhere” during the 20 shutdowns since the mid-1970s, Stovall wrote in a research note. The current closure, now in its 20th day, hasn’t harmed stocks, at least thus far.
In fact, the benchmark stock index is up since the shutdown started, the result of a tiff between Donald Trump and congressional Democrats over the president’s proposed $5.7 billion border wall with Mexico.
The shutdowns over the past four decades “have had a greater impact on headlines than they have on bottom lines,” Stovall declared.
The first full day of the shutdown was Sunday, December 23, and stock prices tumbled on Monday, Christmas Eve day. The catalysts for that were many, however, including the trade war with China and leeriness that the Federal Reserve would keep hiking interest rates. And indeed, that slide was actually a continuation of the downtrend that began back in October.
After Christmas, stocks have generally moved higher, amid optimism about China and the Fed. From the close at the last trading day before the shutdown, on Friday, December 21, to this Thursday’s close, the S&P 500 is up almost 7.5%. By Stovall’s estimation, that is the best shutdown return ever.
The shutdowns lasted an average of seven calendar days, with the shortest at one day and the longest (in the mid-1990s) at 21, Stovall indicated. The worst S&P shutdown performance was in 1979, when it dropped a mere 3.9%.