The stock
market apparently is not nervous about the government shutdown. October 1, the
first day of the government shutdown, S&P went up by 0.80%, DOW by 0.40%
while Nasdaq by 1.2%.
On a weekly
note which ended last Friday, S&P was up by 0.53%, Nasdaq by 0.96%
while DOW was down by 0.38%.
|
Date
|
S&P
|
DOW
|
Nasdaq
|
|||||
|
26-Sep
|
1,698.67
|
0.30%
|
15,328.30
|
0.40%
|
3,787.43
|
0.70%
|
||
|
27-Sep
|
1,691.75
|
-0.40%
|
15,258.24
|
-0.50%
|
3,781.59
|
-0.20%
|
||
|
30-Sep
|
1,681.55
|
-0.60%
|
15,129.67
|
-0.80%
|
3,771.48
|
-0.30%
|
||
|
1-Oct
|
1,695.00
|
0.80%
|
15,191.70
|
0.40%
|
3,817.98
|
1.20%
|
||
|
2-Oct
|
1,693.87
|
-0.10%
|
15,133.14
|
-0.40%
|
3,815.02
|
-0.10%
|
||
|
3-Oct
|
1,678.66
|
-0.90%
|
14,996.48
|
-0.90%
|
3,774.34
|
-1.10%
|
||
|
4-Oct
|
1,690.50
|
0.70%
|
15,072.58
|
0.50%
|
3,807.75
|
0.90%
|
||
What does
this mean? The investors are not worried about the economic repercussions
of the US government shutdown.
The longest government shutdown was in 1995-1996 and it cost $1.4 billion, over $2 billion in today’s dollars according to Office of Management and Budget.
According to
Lexington, a global market research firm, the cost of a day’s shutdown is at
least $300 million. A week-long shutdown
will reduce the 4th quarter growth by 0.2%.
A 21 day
shutdown similar to the 1995-1996 shutdown could reduced growth by 0.9 to 1.4% according
to Guy Lebas, chief fixed income strategist at Janney Montgomery Scott LLC.
The economic
cost of the shutdown is just a fraction of the total GDP of the USA. Investor’s
interests are mainly on the recovery of the US economy and improving global economic
outlook.
Historically, Government
Shutdowns Never Hurt the Stock Market
Historically, US Government shutdowns never
hurt the stock market. There are 17 shutdowns technically but none of them lasted
for more than a month.
The longest shutdown was during the Bill
Clinton administration from November 14 to November 19, 1995 and from
December 16, 1995 to January 6, 1996, for a total of 28 days. The
S&P 500 rose 4 percent between those dates.
Here is the list of US
Government Shutdowns:
|
September
30 to October 11, 1976 (10 days)
|
|
September
30 to October 13, 1977 (12 days)
|
|
October
31 to November 9, 1977 (8 days)
|
|
November
30 to December 9, 1977 (8 days)
|
|
September
30 to October 18, 1978 (18 days
|
|
September
30 to October 12, 1979 (11 days)
|
|
November
20 to November 23, 1981 (2 days)
|
|
September
30 to October 2, 1982 (1 day)
|
|
December
17 to December 21, 1982 (3 days)
|
|
November
10 to November 14, 1983 (3 days)
|
|
September
30 to October 3, 1984 (2 days)
|
|
October
3 to October 5, 1984 (1 day)
|
|
October
16 to October 18, 1986 (1 day)
|
|
December
18 to December 20, 1987 (1 day)
|
|
October
5 to October 9, 1990 (3 days)
|
|
November
13 to November 19, 1995 (5 days)
|
|
December
5, 1995 to January 6, 1996 (21 days)
|
The previous year’s shutdown under
Carter’s administration were removed because the Dow was 959 the day
Carter was inaugurated and 966 the day he left. There is very little movement on
the stock market during his time.
|
Nov. 20-23, 1981
— The market fell one point from 853 to 852; one month out it was up to
873.
|
|
Sep. 30-Oct. 2, 1982
— The market rose from 896 to 903; one month out it was up to 991.
|
|
Dec. 17-21, 1982
— The market rose from 1,011 to 1,030; one month out it was up to 1,084.
|
|
Nov. 10-14, 1983
— The market rose from 1,236 to 1,254; one month out it was up to 1,260.
|
|
Sept. 30-Oct. 3, 1984
— The market fell from 1,206 to 1,182; but one month out it was up to
1,217.
|
|
Oct. 3-5, 1984
— This shutdown was an extension of the previous one, and the market
remained the same, at 1,182.
|
|
Oct. 16-18, 1986
— The market fell from 1,836 to 1,811; but one month out it was up
to 1,860.
|
|
Dec. 18-20, 1987
— The market rose from 1,975 to 1,990; one month out it was down to
1,963.
|
|
Oct. 5-9, 1990
— The market fell from 2,511 to 2,446; but one month out, at 2,502, it
had regained nearly all it had lost.
|
|
Nov. 13-19, 1995 —
The market was way up, from 4,872 to 4,983; and the following month the
government shut down again.
|
|
Dec. 5, 1995, Jan.
6, 1996 — The market rose from 5,177 to 5,197; two months out (since this one
took most of the month) the market was way up, to 5,407.
|
Based
on the above data, government shutdowns virtually have no impact on the stock
market.
Hence,
investors today did not fret about on the ongoing standoff between the
Republicans and Democrats over the federal budget.
The Effect of US Gov't Shutdown
in Philippines Economy
On the first day of shutdown, PSEi registered
gains and it continued in green for the rest of the week.
|
Date
|
PSEi
|
|
|
26-Sep
|
6,407.46
|
-0.20%
|
|
27-Sep
|
6,379.81
|
-0.43%
|
|
30-Sep
|
6,191.80
|
-2.95%
|
|
1-Oct
|
6,197.84
|
0.10%
|
|
2-Oct
|
6,362.26
|
2.65%
|
|
3-Oct
|
6,387.65
|
0.40%
|
|
4-Oct
|
6,390.48
|
0.04%
|
The potential impact of US
Government shutdown would be on risk-averse foreign investors who move away
from risky assets to traditional safe haven. These risk-averse investors can
cause volatility in the stock market and foreign exchange.
 |
| Photo taken from http://www.bsp.gov.ph |
This is evident during the past
few months when the US Fed hints on tapering the $85 billion a month stimulus.
Our stock market plunge dramatically and our peso depreciated more against
dollar even reaching the 44 exchange rate level. The Bangko Sentral ng
Pilipinas (BSP) however is ready to counter any volatility in the financial
markets.
Right now,
our stock market and currency are stable. There is no significant deviation
from their current levels. In fact, our stock market experienced an
uninterrupted gains beginning Oct 1 until October 4, 2013. Investors are
largely ignoring the economic repercussions of the US Government shutdown.
If you
take a look on the USD/Php exchange rate, our Peso actually got stronger
during the week since the government shutdown. It appreciated by 0.90% for the
week ending Oct 4, 2013.
|
Date
|
USD/Php
|
|
|
26-Sep
|
43.27
|
0.37%
|
|
27-Sep
|
43.37
|
-0.23%
|
|
30-Sep
|
43.48
|
-0.25%
|
|
1-Oct
|
43.31
|
0.39%
|
|
2-Oct
|
43.40
|
-0.21%
|
|
3-Oct
|
43.11
|
0.67%
|
|
4-Oct
|
43.09
|
0.05%
|
Amid all
the hoopla surrounding the US government shutdown, the investors are actually
focusing on the fundamentals of the economy.
Philippine economy is largely
protected from the US Government shutdown.
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