Salient to Investors:
Since 1976, the S&P 500 has risen 11 percent on average in the 12 months following a government shutdown versus an average return of 9 percent over 12 months. There have been 17 shutdowns since 1976, with 5 occurring within 3 months of each other – in all the cases, the Index was higher by the end of the next 2 years. The S&P 500 declined an average of 0.59 percent during the shutdowns.
While the S&P 500 has fallen seven of the past eight days on concern the political deadlock over the U.S. budget and debt limit will hurt the economy, investors at Raymond James & Associates and PNC Wealth Management say equities will recover as profits rise.
Analysts expect Q4 earnings for S&P 500 companies to rise 9.1 percent, the most since Q3 2011, and will continue to grow in 2014 and 2015, when they rise more than 10 percent.
Jeff Saut at Raymond James said he is a buyer on weakness, and once we are past the debt ceiling, the market will focus on improving economic numbers and improving earnings.
Martin Leclerc at Barrack Yard Advisors said going back to the 1990s and the last one, shutdowns were actually good for the stock market.
Kristina Hooper at Allianz Global Investors said stock swings will widen during the shutdown because the majority of the market was not expecting it as late as last week. Hooper said the longer-term picture is positive and we will work through this relatively quickly.
Kevin Caron at Stifel Nicolaus said stocks need to fall further before they become bargains because we have not seen a significant correction and the market is at fair value. The S&P 500 is at 16.1 times earnings.
Mark Zandi at Moody’s Analytics said a 3-to-4 week shutdown would cut growth by 1.4 percent – without a shutdown Q4 growth would have been 2.5 percent annual.
E. William Stone at PNC Wealth said the gridlock in Congress won’t weaken the overall economy and investors should take advantage of these kinds of sell-offs as the fight does not harm the long-term market or the underlying economic picture.
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