Investments
2024 Capital Market Assumptions
The 2024 edition of our 10-Year Capital Market Assumptions (CMAs) offers our projections for asset class returns, volatilities and correlations over the next decade. This yearly exercise helps in shaping the design of our investors’ long-term portfolios.
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Investments
2023 Year-End Fundraising Checklist
The approach of the end of the year means end-of-year tax planning, which for many includes finalizing annual charitable contributions. This presents an opportunity for nonprofits to engage donors and help them complete their gifts by December 31.
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October 2023
Look past the political noise and focus on what really matters to markets: earnings and interest rates.
October 2, 2023
A U.S. federal government shutdown has been averted. Congress passed a stopgap funding bill just before its deadline on September 30, which will keep the government open until mid-November.
But the overarching problem remains. Although the government will continue operating until November 17, Congress needs to agree on a budget for its current fiscal year, which began on October 1, or another stopgap measure by the mid-November deadline. If it fails on both counts, lawmakers will force the government into its fourth shutdown in the past 10 years.
The stock market’s initial reaction to the news from Washington was muted. And if history is a guide, a government shutdown (if it occurs) should have a minimal impact on the economy and stocks.
However, if a shutdown occurs, there is a possibility it could be more disruptive this time. The economy is already wrestling with macro shocks, such as higher oil prices, an auto strike and the restart of student loan debt payments. Additionally, investor sentiment has been dampened by rising bond yields and the slower pace of anticipated rate cuts signaled by the Federal Reserve (the Fed) in its recent summary of economic projections.
Impact on the Economy and the Stock Market
In general, shutdowns tend to be less disruptive than investors fear because only a small portion of the government is affected. Non-essential services, like museums and national parks, are suspended while critical functions like air traffic control, social security and healthcare services continue to operate. A shutdown does not affect state and local functions, and unlike the debt ceiling debate earlier this year, there is no risk the Treasury Department will stop paying the bills.
Shutdowns are usually short lived, lasting an average of eight days since the 1970s. More recent shutdowns have averaged about two weeks, except for one that lasted 35 days from late 2018 into early 2019. In that case, 75% of the government was still financed.
Research also suggests that stocks are not significantly impacted. Since 1977, data shows an even split between gains and losses during these shutdowns, with the S&P 500 flat on average. The S&P 500 has gained 1.2% on average one month after the end of a shutdown and 2.6% after three months.
Source: Strategas
A Prolonged Shutdown Comes with Risks
If the shutdown occurs and is prolonged, the U.S. could lose its last AAA credit rating from Moody’s, potentially leading to more volatility. A confluence of other factors, including rising oil prices and the impact of union strikes, could also exacerbate investor concerns.
Additionally, a drawn-out shutdown would delay the release of critical macro data that the Fed factors into its interest rate decisions.
Stay the Course
We continue to monitor developments in Washington closely. However, we believe investors should look past the political noise and stay the course, as the shutdown should not pose a serious threat to markets and the economy. Investors should focus on what really matters in the weeks ahead: third quarter earnings and greater clarity from the Fed on the timing of rate cuts.
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