While Washington Sees Red, Wall Street Sees Green

If red means stop and green means go, this Heat Map of the S&P 500’s performance today highlights how investors feel about the post-shutdown stock market:

While the government shutdown isn’t good news for government employees, we’ve established that it shouldn’t derail the stock market. That’s because while the mess in Washington has given the media fodder for various doomsday scenarios, history paints a very different picture.  In the year following the last government shutdown (1995), the S&P 500 rallied 21%.

You’ll remember that the last set of government shutdowns occurred in late 1995 and early 1996. Now where have we heard about the year 1995 recently?  Well, in this blog, for one.  Since last June I’ve noticed that the market this year is tracking 1995, which turned out to be a tremendous year for Wall Street. And this theory has held up through August and September—despite the fact that September is historically a weak month for the stock market:

When you consider all of the government shutdowns since 1976, the market rose an average 11% in the following twelve months. That’s because greed eventually trumps fear.

And this applies today. We saw the major indices pull back for seven of the eight past trading days, but it rebounded today as investors realized that the shutdown won’t spell the end of American commerce. We’re also seeing higher inflows due to the fact that today is the first day of a new month and a new quarter.

But the buck doesn’t stop here. I expect the market to move higher during third-quarter earnings season, which is expected to be the strongest in two years. This month alone, more than 300 companies in the S&P 500 are scheduled to release quarterly operating results. So I advise that you continue using Portfolio Grader to fine tune your portfolio leading up to what should be an exciting time for the market, government shutdown or no.


Louis Navellier

Louis Navellier

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