How Do Other Assets Perform During Government Closures?

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Published October 04, 2013

| ETFguide

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

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

"There have been 17 U.S. 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 U.S. 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."

AUDIO: What are the Historical Odds of a U.S. Debt Default?

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 (XLY). 

During the last two government shutdowns in 1995-96, neither lasted longer than a month.




Related Economic News
The Bureau of Labor Statistics did not issue the September unemployment report (due today) because of the U.S. government shutdown. The headline rate for nationwide unemployment for August was 7.3%, while the more complete U-6 number was 13.7%.

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

Private sector U.S 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 (XHB) declined for a third consecutive month by 1.6% in August. Three straight declines have not happened since the end of 2007.

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