It was the longest government shutdown in history...
On October 1, the federal government closed. The shutdown went on for weeks. And in typical Washington fashion, each party thought the other was at fault.
I won't pick a side... because we do investing here, not politics. But either way, after more than a month, the standoff has come to an end.
The federal government finally reopened last week.
That's a rare situation for investors. We've only seen 10 other government shutdowns since 1980. So it's worth examining what it means for your money.
It turns out, the government reopening isn't just a good thing for our country... It also points to double-digit gains over the next year.
Stocks Outperform After Shutdowns End
On Sunday, November 9, Senate Democrats reportedly broke with their party to negotiate and end the shutdown. By Wednesday evening, it was official. And on Thursday, federal employees returned to work.
This is a clear positive for the economy and markets...
Remember, markets hate uncertainty. Investors sell stocks when they don't know what to expect. And oftentimes, simply reaching an outcome – even if it's not a great one – will calm them down.
The government shutdown created plenty of uncertainty. It put around 1 million employees on furlough. The bureaus that release economic data were closed. And with no timeline for when the standoff would end, businesses found it tough to plan.
The point is, the end of a shutdown should be good for investors. And history proves that out...
To see it, I looked at what happened to the S&P 500 Index after each government shutdown since 1980. Again, we've had 10 other instances since then. So these cases don't happen often.
The outcome from the data is clear, though. Stocks perform well when the government reopens. Here's what we can expect according to history...
The S&P 500 has grown an impressive 9.6% per year since 1980. That's a great return. But buying when a government shutdown ended was an even better opportunity.
Those setups led to gains of 4.6% in three months, 10.4% in six months, and 12.9% over a year. In each case, that's healthy outperformance. And stocks were higher a year later 80% of the time.
The hard numbers confirm what common sense tells us... Markets hate uncertainty. So when uncertainty ends, prices rise.
Now that the government has reopened, certainty has returned. And with history as our guide, that's a strong reason to be bullish right now.
Good investing,
Brett Eversole
Further Reading
Investors are always looking for reasons to sell. And now, the recent major rally is spooking investors... while fear ticks higher. But that's not a reason to keep your money out of the market. In fact, times like these are great buying opportunities.
"Market swings are nothing more than the graphic representation of human behavior," Greg Diamond writes. Technical analysis shows that market behavior tends to repeat. And by leveraging this strategy, you can understand the past in order to profit in the future.