S&P equity strategist Alec Young dropped by Breakout to explain to Nesto and me what a shutdown of the U.S. government would mean to the equity markets.
Yup, we're so focused on making you money, we resisted the urge to rage against the national embarrassment that is a government willing to idle its own employees, despite greater than 8% unemployment, in order for elected officials to feign outrage into any and all available microphones, just so we could tell you how to trade D.C.'s institutional idiocy. I've certainly traded worse catastrophes.
But I digress. Young knows his market history, current events and how to put the two together to make sense of markets. Naturally topic No. 1 was what we learned from the 1995-1996 shutdown that we can apply to the impending mess of today.
His main message: don't sweat it. Young broke out some statistics from the Clinton/Gingrich shutdown that covered parts of November and December 1995 and January 1996, and he came to the reassuring conclusion that the markets saw through the mess and performed just fine, thank you. Specifically, the S&P500 gained a stellar 4% in just two months during the shutdown -- a solid performance in any conditions.
Not shockingly, the real winners were in traditionally defensive sectors like energy (up 12.2%) and utilities (9%). Digging into the sub-industries oil and gas drilling soared a stunning 25.4% in only two months. Curiously, or at least amusingly if only to me, casinos and gaming came in just behind, climbing 25% during the D.C. mandated "vacation."
Obviously, it would be ill-advised to draw too many conclusions from such data mining. There were other macro and micro considerations driving the industries mentioned and, lest we forget, the mid-90s was a spectacular time to be long stocks. The real takeaway is that investors then, and now as Young sees it, shouldn't let the headlines drive them out of stocks. Young, like most observers, sees a long-term shutdown as extremely unlikely, and he believes the market will see through the present and focus on life after the legislators return to business.
What would change Young's view? A raising of the U.S. debt ceiling, forcing Washington to print even more money and decreasing the foreign appetite for American debt. Watch the video for his more detailed thoughts, and let us know what you think in the space below or at firstname.lastname@example.org.