It had all the makings of a great investment horror story, especially since it was occurring in the month of October. The showdown between Democrats and Republicans wrangling over the government shutdown and debt ceiling had many in the media and on Wall Street predicting financial Armageddon. “If the U.S. were to default on its debt obligations, the financial world would be turned upside-down,” many prognosticated. The only problem was their dire predictions never came to fruition.
The headlines may have sold more newspapers, magazines or financial newsletter subscriptions. Some stock-brokers probably generated some substantial commissions selling their customers’ stocks and bonds in anticipation of the shutdown and the horror to follow. But fin the end, the shutdown was a non-event.
Sure there was market volatility. The market surged up one day, and dove down another as the media reported progress one day, and stagnation the next day. But eventually, both sides of Congress reached a deal and the crisis was averted. And what was the fallout of the potential shutdown? Well for all the consternation surrounding the shutdown, the Dow Jones Industrial Average was up 2.91% for the month of October as of the close of business on Friday, October 25th. And the S&P 500 was up a heady 4.65% as of the close of business on Friday, October 25th.
In summary, investors who chose to ignore the daily media hype and speculations surrounding the potential government shutdown have been rewarded with very nice returns over a very short period of time. Speculators who moved to cash have missed out on significant returns. Remember what happened this month, and more importantly, what did not happen when we face this situation again early in 2014.
Sources: InvestmentNews, The Wall Street Journal