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How Do Assets Other Than Stocks Perform During Government Closures?

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The longer the shutdown continues, the greater the potential financial damage to the economy and consumer-focused industry sectors.

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History shows that stocks have the tendency to gain during and after a government shutdown, but what about other investment categories like gold (NYSEARCA:IAU) and US Treasuries (NYSEARCA:TLT)?

Scott Minerd, the Global Chief Investment Officer at Guggenheim notes:

There have been 17 US federal government shutdowns since 1976. Excluding drastic moves in commodity prices and bond yields in the late 1970s, analysis of eight occasions during the past 30 years reveals that US equities and the dollar tend to decline during shutdown periods, while gold and commodities tend to perform well. Shutdown periods do not appear to have a significant effect on 10-year Treasury yields. Historically, when a shutdown ends, market performance reverses quickly, and Treasury yields fall by an average of 22 basis points over the following 10 days.

What will be the economic ramifications of the latest federal closure be? A one-week shutdown will reduce annualized GDP growth by 0.25%, according to consensus expectations. And the longer the shutdown continues, the greater the potential financial damage to the economy and consumer-focused industry sectors (NYSEARCA:XLY).

During the last two government shutdowns in 1995-1996, neither lasted longer than a month.



Related Economic News

The Bureau of Labor Statistics did not issue the September unemployment report on Friday because of the US government shutdown. The headline rate for nationwide unemployment for August was 7.3%, while the more complete U6 number was 13.7%.

The ISM manufacturing index (NYSEARCA:XLI) showed a faster pace of growth in September, rising to 56.2, the highest level since spring 2011.

Private sector US employment grew by 166,000 in September, according to ADP private payroll data, while the August numbers were revised down to 159,000.

Pending home sales (NYSEARCA:XHB) declined for a third consecutive month by 1.6% in August. Three straight declines have not happened since the end of 2007.

Editor's note: This story by Ron DeLegge originally appeared on ETFguide.com.

To read more from ETFguide, see:

Stock Market Volatility Wakes Up, More Ahead?

Is the Great Gold Crash Over?

Is a Government Closure Bad for Stocks?
No positions in stocks mentioned.
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