Government Shutdown Effect on Market
After nine months of waiting, the Federal Reserve voted in September to cut its benchmark interest rate by 0.25%. While this move wasn’t unexpected, it represents an important shift—the first step away from the “higher for longer” stance of recent years. Historically, the start of a rate-cutting cycle has often provided a supportive backdrop for both stocks and bonds, which is encouraging for investors. We expect another cut or two before year-end.
Now we have a federal government shutdown. On the news channels and in politics, shutdowns make great theatre and often cause worry amongst the public. However, they typically don’t have much effect on the markets.
“While volatility may increase, it tends to be moderate-far less severe than the market turbulence experienced related to tariff uncertainty in April and May”, says Raymond James Chief Investment Officer Larry Adam.1
If we can get past the near-term choppiness, the 12-month gains of the S&P 500 are likely to be positive, if history is any guide. If you go out 12 months following the 20 shutdowns over the last 50 years, you will see an average gain of S&P 500 of 13%.1
We realize there are possible actions that have been threatened such as the permanent firing of federal employees, but that rhetoric may fizzle out during the process of political negotiation. Our plan is to stay the course, pay more attention to the bond market, the FED moves and the economy as the next several months unfold.
As we have fewer than 90 days left until year end, we will be contacting many of you for RMDs, tax data, financial reviews and charitable giving, to mention a few subjects. As always, we’re monitoring your portfolio closely and making thoughtful adjustments as needed. If you’d like to discuss anything related to the government shutdown or Fed’s decision, or how changing interest rates might affect your financial plan, please don’t hesitate to reach out.
Chris Reaney, CFP®
Founding Partner, Managing Director, Wealth Manager
Matthew Marino-Babcock, CFP®, AAMS
Partner, Vice President, Wealth Manager
Highwater Wealth Group of Steward Partners
145 Maplewood Ave, Suite 100
Portsmouth, NH 03801
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