Industry Group Charts Prove It: Market Sees Through Political Posturing

Howard Simons
  OCT 14, 2013 9:40 AM

If federal spending is so important -- and it is -- then why did only one industry group's returns shift lower when it was threatened?


What sort of merciful god allows a government shutdown to close national parks and keep assorted pundits’ mouths open? The worst part of our various manufactured crises is the endless parade of camera-chasing know-it-alls -- few of whom have demonstrated an ability to forecast snow in January -- to opine on the market outcomes of shutdowns, closures, defaults, and other manifestations of our hard-to-watch political system.

What Changed?

Let’s ask ourselves a relatively simple question: Which industry groups’ total return streams changed significantly between the October 1 start of the shutdown and the October 10 date of this writing in comparison to the period between the September 18 FOMC meeting and September 30? I will use an 83.33% confidence interval here as that gives us 5-to-1 odds of a significant change.

The answer is that only 13 of the 144 industry groups in the S&P Supercomposite changed, and here is the good part:  Only one of those groups, wireless services, saw a shift from positive to negative average daily returns. This group includes Crown Castle International (NYSE:CCI), NTELOS Holdings (NASDAQ:NTLS), Telephone & Data Systems (NYSE:TDS), and USA Mobility (NASDAQ:USMO). The other 12 groups all saw shifts from negative to either positive or, in the case of hotels, to less negative average daily returns after they shut the lights in Washington.

If federal spending is so important -- and it is -- then why did only one group’s returns shift lower when it was threatened? The obvious answer is that the market in general saw through the political posturing better than did the pundits. Call it the Alfred E. Neuman School of investment management: What, me worry?

I should note that three of the groups involved were distillers and vintners, packaged foods, and soft drinks. Americans: When the going gets tough, we sit in front of the TV with beer and pretzels. The Founding Fathers would not only be proud, but they would probably join us on the sofa. Other groups on this list include health care equipment and health care distributors; perhaps this was in some sort of hope that the medical equipment tax in Obamacare would be repealed.
There is a second and much larger list involved, and that is the 39 groups whose returns were unchanged at a similar confidence interval. No sectoral themes are apparent in this list, which is just as well. This list’s large size is a tribute to inertia: Just like people, industry groups’ preferred course of action is no action at all. For all of the bloviating about how we were in some sort of end-of-days crisis, three times as many industry groups were unchanged as were changed significantly.
No positions in stocks mentioned.