Government Shut down – so what – “Be thankful we’re not getting all the government we’re paying for” – Will Rogers

Will Rogers had it right – less government is better.  The current federal government shutdown is a good thing.  I read recently there have been 17 government shutdowns since 1976. The current episode is not worrisome. See the following chart from Bespoke comparing today to 1995 – the last time there was a “government shutdown”. The market cruised right through the event.  The market didn’t miss a beat in 1995. 4Q 1995 saw a 5.4% gain in the S&P 500. 1Q 1996 saw a gain of 4.8% in the S&P 500.

1995 v 2013 SPX and Govt Shutdown 9-30-13

Earnings were rising in 1995 and they are rising now. Leading economic indicators were recovering from a soft patch then and are now. It would seem that once again, earnings and economics trumps concerns over government policy at least in the short run. In addition, Federal spending has been flat in dollar terms in recent quarters and the deficit is shrinking rapidly as can be seen below in a chart from Scott Grannis.

Fed spending v rev Sep 2013

I find it encouraging that the politicians are fighting over how they can spend less instead of more. The current argument is not a new bit of news and hence has a small surprise factor.  If the market behaves as it did in 1995 and also as it has in 80% of the other years when it is up 15% or more by the end of 3Q then the S&P 500 should finish the year higher than now.  Sounds good to me . . . Jeb B. Terry, Sr. Oct. 2, 2013

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