Yahoo Finance Should Wall Street ETFs At All Worry Government Shutdown?
Only four months after narrowly avoiding a government shutdown, the United States, the world's largest economy, is once again facing a looming fiscal crisis. Many may worry that this could result in stock market crash. But history suggests that although markets might experience short-term pressure if shutdown risks intensify, any resolution could lead to renewed buying interest in stocks.
Hence, some top-ranked ETFs including SPDR S&P Semiconductor ETF XSD, SPDR S&P Retail ETF XRT, Technology Select Sector SPDR ETF XLK, Vanguard Mid-Cap ETF VO and iShares S&P 500 Value ETF IVE should be bough if there is any dip in the market..
Historical Insights into Market Behavior
Recently, RBC Capital Markets' strategist, Lori Calvasina, delved into historical data to unearth noteworthy patterns, as quoted on Yahoo Finance. Her analysis, published on Monday, unveiled that leading up to the last seven government shutdowns lasting ten days or more, dating back to 1976, the median decline in the S&P 500 was a substantial 10.2%. As of late July 2023, the S&P 500 had already retreated by 5.9% from its peak.
The steepest drop, a whopping 19.8%, occurred preceding the government shutdown from December 21, 2018, to January 23, 2019. In contrast, the mildest dip in stock values, 3.7%, emerged before the 21-day shutdown that concluded on January 6, 1996. When these shutdowns actually took place, Calvasina's team noted a median S&P 500 decline of 2%.
Silver Linings Amidst Shutdown Worries
Nevertheless, there are a couple of silver linings when it comes to market reactions to government shutdowns. Firstly, markets often stage a strong recovery once feuding politicians reach consensus on contentious issues, ultimately reopening the government.
According to research by RBC, in the 12 months following a government shutdown lasting ten days or more, the S&P 500 experienced a median gain of 18.9%. Secondly, data from Truist examining the last 20 shutdowns dating back to 1976 shows that stocks were in the green 50% of the time during the actual shutdown period.
Impending Shutdown
The clock is ticking, with the US government facing the prospect of shutting down this coming weekend unless Congress manages a last-minute agreement on a dozen spending bills. September 30 marks the funding deadline.
During a shutdown, essential services like law enforcement and public safety remain funded, but hundreds of thousands of government employees face delayed paychecks, adding further uncertainty to an economy grappling with rising interest rates and ongoing UAW strikes at GM, Ford, and Stellantis.
Economic Ramifications
Economist Greg Daco of EY estimates that a one-week government shutdown could trim $6 billion, equivalent to 0.1%, from the fourth-quarter real GDP.
What Lies Ahead of Wall Street?
Keith Lerner, Truist's chief markets strategist, noted, "government shutdowns tend to be high profile though low-impact market events," per the Yahoo Finance article. While uncertainty may heighten short-term volatility, historical evidence suggests minimal lasting market impact.
Investors can thus use any dip in the market as a buying opportunity.
Top-Ranked ETFs to Win
SPDR S&P Semiconductor ETF (XSD) – Zacks Rank #1 (Strong Buy); down 6.6% in the past three months
SPDR S&P Retail ETF (XRT) – Zacks Rank #1; down 2.9% in the past three months
Technology Select Sector SPDR ETF (XLK) – Zacks Rank #1; down 2% in the past three months
Vanguard Mid-Cap ETF (VO) – Zacks Rank #1; down 0.5% in the past three months
iShares S&P 500 Value ETF (IVE) – Zacks Rank #1; down 0.1% in the past three months
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)
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Technology Select Sector SPDR ETF (XLK): ETF Research Reports
SPDR S&P Retail ETF (XRT): ETF Research Reports
SPDR S&P Semiconductor ETF (XSD): ETF Research Reports
iShares S&P 500 Value ETF (IVE): ETF Research Reports
Vanguard Mid-Cap ETF (VO): ETF Research Reports
