On the back of budget and healthcare debates the US Federal Government has shut down. The bad: a government shut down of any length slows economic growth and limits meaningful discussions around structural reform and the impending debt ceiling. The approaching debt ceiling is a bigger concern to markets and although the debate will be contentious it is not likely that either side will be stubborn enough to not reach a deal. The good: the shut down, due to public reaction, removes much of the political posturing available to both sides, and likely extends the FED purchase program.
What does all this signal for your investment portfolios?
From a recent article published by Stonebridge Capital, equity markets have typical recovered from government induced selling by January, and according to several market analysts a government shutdown is actually more of an opportunity than a threat.
Any negative impact to economies will not been seen immediately and therefore will likely delay FED tapering well into 2014. Therefore the continued influx of funds will continue to allow private sector companies to spend money on large capital improvement projects, and push investors toward “risky” – equity – investments.
US equity markets, regardless of investor optimism, have continually risen over the past year when FED tapering has not been on the table. International markets haven’t seen quite the same rise as US markets but the economic issues seem more systemic. The FED purchase program will continue, and, according to McVean Trading, optimism on economic growth throughout much of Europe is a greater than it has been in sometime.
There are still questions that remain regarding the approaching US debt ceiling, but the public reaction to this shutdown limits some of the politics preventing meaningful discussions. The general thought across market and government analysts is that the debate will be robust but a compromise agreement will happen at the last minute.
All of these moving parts bring us back to our idea of intentional investing. Sticking to a process that was formed in academia, refined through experience, and focused on appropriate diversification is meant to help create more enjoyable moments that span generations.