Politicians can shut down the government but they can't stop the bull market. That seemed to be takeaway from Wall Street yesterday as stocks rallied strongly despite the first government shut down in 17 years. The S&P500 (^GSPC) rose 0.8% to 1,695 even as a worse case scenario unfolded in Washington D.C. The rally came as a surprise to bearish investors. Not only did stocks rise but gold dropped by double digits falling below the key $1,300 an ounce.
Despite weakness Wednesday morning the S&P is up well over 3% since Labor Day; belying the notion that the DC debacle would lead to profit taking in equities.
Main Street investors are to be forgiven for being under the impression that the world was going to end last night at midnight. The amount of rhetoric surrounding the debt ceiling debate has made it all but impossible to separate myth and reality when it comes to your money.
Lee Munson of Portfolio LLC has an easy rule of thumb regarding Wall Streets relationship to Washington D.C.: "Essentially we're mercenaries." And he counts himself among the self-interested. "I represent my clients. I'm here to make them money. I don't think there's some direct link between us and what's going on in the political system."
Which isn't to say the shutdown isn't an outrage. There is plenty about which to be appalled on both sides of the political aisle. Anger, disappointment and frustration are appropriate emotions. The risk for investors is letting those emotions guide them into making uninformed investment decisions. Folks with a long-term investing horizon shouldn't make any sort of financial decisions based on idiocy emanating from the swamps of Washington.
"Stay invested. Stick to your long-term plan," encourages Munson. "Focus on the people you elected who can't seem to do their jobs. Call your congressman up, call your senator and ask them why they are an embarrassment."
The stock market doesn't operate on a clock set in Washington D.C. or anywhere else. A government shutdown might eventually hit you wallet but not as badly as you'll get hurt by jumping in and out of stocks with every gloomy headline.