Government Shutdowns and The Stock Market

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Today, we'll be discussing government shutdowns and the stock market. Hello, welcome to Money Talks. My name is Ken Wink from Summit Financial Consulting. If you'd like more info about what you hear on the show today, give us a call at 586-226-7000. 2 1 0 0 or check us out on our website summitfc.net. While you're at the website, be sure to check out the radio page, check out past shows. You can subscribe on Apple Podcasts, Spotify, or Apple Music. So as of today, the government is shut down due to budget disputes. The shutdown started on October 1st, and the House recently passed a seven-week extension, but the Senate's discussing health care reform. So at this point, non-essential parts of the government have been shut down. Today, we're going to discuss what's open, what is closed, and how the stock market typically handles a government shutdown. But before we jump in today's very important topic, let me introduce Tony Shore, my co-host. Tony, did you have a trip planned this weekend to a national park? Has this been interrupting your luxurious travel plans?

Well, no, it has not. I did not. I do love our national parks and it is sad for me to see that they're closed. Of course, that's the least of our concerns. I mean, I saw on one of the comedy shows they had a clip of they interviewed people. You know, and there's government employees that are furloughed that won't be getting checks for a while, at least as long as the government stays shut down. And those are the people on the front lines who are affected. And I feel for those people. And there are real world effects. And I know you're going to talk about that. But they were they were kind of mocking because there was a guy from they interviewed some tourists and one guy was from Italy. And he said, my whole life, I dream of visiting Alcatraz. And I come and now it's closed. They filmed these tourists at the line for Alcatraz when they shut it and said it's not open. And that's they were out there. The reporter was interviewing him. And the comedy show showed that clip from a news, an actual news channel was like, yeah, the government shutdowns really affecting people. These tourists can't get into Alcatraz. And I'm like, yeah, there's...

There's a lot more serious. Yeah.

But I can't imagine flying from Europe and that being the highlight of visiting a prison anyway. But it would be disappointing. It's like in the vacation movie when Chevy Chase goes through hell and back to get his family out to Wally World in California or, you know, kind of meant to be Disneyland, taking the family out there and it's closed for repairs. Yeah. When he gets there. Thank goodness for John Candy. Yeah. Oh, yeah. Sorry, folks. Parks closed. The moose up front should have told you. I do a pretty good John Candy. Yeah, I'm impressed. Anyway, yeah. But the government shutdown, we'll see. Now, we are recording this, I want to let our listeners know, on Wednesday, October 8th. So if you listen to it any time after that, when you're hearing this, maybe it's back open. We can only hope. But it is good to understand what happens when the government shuts down and how it's affected things and could affect things if it continues. So I'm anxious to get into that. But this past all I have to say about this past weekend before I pass the show back to you, Ken, is my wife is out of town for 10 days. Oh, she's in Africa, Kenya, Nairobi on a business trip. Africa. Oh, wow. In Nairobi, Kenya, and she'll be gone 10 days. So my question for you and our listeners and viewers out there, is it wrong to order takeout pizza every single day of the week? Is that a

It sounds, I mean, pride is the spice of life.

So as long as you've got a different one, different, not a pepperoni every night, right? Mix it up. Well, no, I'll, I'll switch off.

I might have some Chinese takeout tonight. Hold on your, your heart doctors online too.

The cardiologist is waiting outside my front door right now. Yeah, the cardiac unit's here. Clear. Yeah, you don't want to be in that position. But seriously, that's my life right now. I'm batching it because, you know, we're empty nesters. So it's just me, the dog, and a few cats hanging out at the house, driving each other nuts. You know, and the first couple of days are like, man, I don't remember the last time I was batching it and had this much free time and do whatever I want. And then after about two days, after two days, it was like, okay, this is this, this sucks. I want my wife back.

Yeah. You're like the government shutdown. She's going to open the front door and a tumbleweed is going to come out.

Right. Yeah. Well, and how have you been, Ken? Busy? Yes.

Busy as my wife actually had surgery on her Achilles heel yesterday. Oh, her ankle. So she's she's at home on on painkillers.

So she had surgery on you. Aren't you her Achilles heel? I always hear people say to her, Ken is your Achilles heel. Yeah, I am. I'm trying to, like, without me, she's... I know. Bad, bad joke. We should probably. So, all right. Well, uh, I hope she's doing well. Has she had the surgery then? She's yeah. She had it yesterday morning.

Uh, so far everything's going well, but any weight on it. So she's, she's got a little knee scooter. So she's trying to get along, but, uh,

I hope you're going to have to step up your game and help out a little bit.

Yeah, I had to wake up early this morning to get the kids out the door. It was definitely missing my wife. My wife's MIA effectively as well, Tony. So send each other some supportive text messages.

Yeah, exactly. We both need a little encouragement and help. Yeah. So the government shut down. Besides our wives shutting down on us for a while, the government has shut down. And I mean, my heart goes out to federal employees. I don't know if you have any listening, but I mean, we can talk about the markets and how it is going to affect everyone else out there listening. But boy, I just I happen to know a couple of federal employees who have been greatly affected by this. My cousin worked for the IRS. Don't hold it against her. She had just gotten that job. She left her other job to go to this job. And that was like three months ago. And now she's, you know, being a newer employee and she's considered non-essential. So she's not working right now or getting a check. So.

Yeah, I think that's the most hated word in the government shutdown world is furlough. Because if these employees do not have a good emergency fund, this could really hit hard because they don't get paychecks until the government reopens. So, you know, once it reopens, they do typically get back pay. Yeah. But there is talk. Yeah. Yeah. There is talk that, you know, so there was a world where they didn't work and then they still got paid. But it sounds like this time around, there's a chance if they're not working, they're not going to get paid. So we'll see how that all shakes out. Yeah. But with government contractors, they typically just miss out on compensation or have lost revenue if they're a business.

So my brother-in-law was a government contractor. So.

Yeah.

So, yeah, it's he got laid off completely. So he's not just furloughed. He's, you know. So, yeah, that's that's interesting. So and you're going to talk about, you know, the shutdown and how it affects other things, too, right? Yeah.

Yeah, yeah, absolutely. So furlough is sort of the number one and the biggest just because it has such an impact on so many individuals and business owners and people that work for those businesses. So there is sort of an economic ripple effect. But, you know, just sort of start with, I guess, on the bright side, the things that are not shut down during a government shutdown. So there's there's a laundry list of things that are deemed essential and keep going. keep trucking along. So one is just a treasury payment. So the interest that is earned on investments, if the government ever misses a payment or a penny of interest, you know, that would basically be a default by international finance standards. So they've got to keep paying those, got to keep paying those, those important bills. Another huge set is Medicare, Medicaid, social security, Medicare, and then veterans' disability benefits. So if you're receiving Social Security, don't worry. The government shutdown is not going to affect your monthly income that's coming in.

That's good news. A lot of people get worried about that.

Yeah, that would be disastrous. The furloughed workers are one thing, but with how much of our population is dependent upon those programs, that would be really rough. Additional things are going to keep working. U.S. Postal Service is going to keep delivering mail. The Federal Aviation Administration and the TSA, this is a tricky one. They're going to continue to operate mail. But again, they're not getting paychecks. So they're not working for free, but they're not getting paid. And we were talking before the show that a lot of those employees have decided, you know what, I'm just going to call in sick. Yeah.

So TSA lines are a little longer in some places that you're going to see that effect. And I just read that the Nashville... air traffic control center couldn't operate because too many people, air traffic controllers called in sick. They're essential. And in most places they are working. However, if enough of them call in sick or don't agree to come in during the government shutdown, well, then there's an issue. And Nashville, I know, had that issue. And so that causes some delays with the traffic. I mean, there's still air traffic control from other areas that can give them clearance. So I guess that's how they were operating, but not on full scale. And there were some issues with TSA and air traffic control in Chicago, I heard, is what I read in this article yesterday. Yeah.

Yeah, I mean, there's been some airplane problems in the past year, and some people are arguing, well, maybe they're just paying more attention to it now because it's sort of been a trend. But now is not the time to be short-staffed on air traffic controllers. I think we can all agree on that. I'm thankful that it's not a total shutdown. I mean, could you imagine if they shut down all – Airplanes in the entire United States. Well, you know, they'd have a bill passed pretty fast in Congress if I think so. Traffic.

Yeah, I think so, too. Yeah. Yeah, that's that's crazy. Yeah. In fact, the Nashville banner, which is the big newspaper in Nashville. said that flights arriving and departing were reduced because of a shortage of air traffic controllers. Several hours after the airport announced that reduction, CNN reported that so many controllers had stayed home that the air traffic control tower would shut down entirely Tuesday night. So, yeah, it's strained by controllers calling in sick during the government shutdown that began a week ago. Yeah, they're getting the message across, I guess. You know, let's get this thing figured out, and I hope so. Our Congress. Yeah, it's, I view it as a fail, and I'm, you know, I'm not, we're not going to talk politics, just in general. I'm not talking about party or partisan politics. I'm talking about in general, you know, both sides need to figure it out, right? Yep. Absolutely. Yeah.

Yeah. A couple of other things that are still up and running, food stamps and all of those similar types of programs are still running. And then lastly, law enforcement is still still keeping the peace. Yeah.

Yeah. So essential workers, those are considered essential workers. And, you know, government employees are furloughed. You mentioned it doesn't affect certain things. The things it does affect, though, you know, national parks.

Right. Yeah. Yeah. There's there's unfortunately a pretty decent list of things that it does affect. So, yeah, we talked about furloughed workers and those potential layoffs. Yeah. You know, and, and one fear that a lot of people have is that if there is a, a portion of the government or, or park service or whatever it may be, and, and they maybe not park service, but if they're able to operate with less people, right, just grind it out like corporate America, the government, when they can grind it out with a smaller head count, they're typically going to try to grind it out to save some money.

And keep it that way. Yeah, not restaffed. So, yeah, that's the danger right now. I know the Food and Drug Administration, you know, food inspections, that's closed during the government shutdown. That's a big concern, too.

It is, yeah. That could lead to some trouble. The Securities and Exchange Commission and the CFTC, so that is what regulates stocks and ETFs and all the commodity exchanges and futures, those are shut down. Wow. So less less enforcement action for perhaps some bad eggs out there that do money management. FEMA is shut down. So the Federal Emergency Management Agency, FEMA. So if we were to have a natural disaster right now, that could be really bad. having them shut down. So that's life and death. So again, hopefully they get it figured out quickly so that those people can get back to work. The EPA, Environmental Protection Agency, they basically pause every single application, project, permit, plan. So that's one of the things that could really slow down the economy because we're just not moving forward on some of these projects waiting for approval. Yeah, that could hurt businesses too.

Yeah. Yeah, long-term, we could see an effect, the ripple effect from this, right?

Yep, absolutely. So a big one for us on the finance side is government data collection is shut down. So the biggest one that everybody's talking about right now is the jobs report. So we were supposed to have a jobs report. And on the surface, it's like, okay, well, we don't know exactly how many people got jobs or lost jobs. But that is one of the primary tools, right? that the Federal Reserve uses when deciding whether to adjust monetary policy.

And those numbers affect the market one way or the other.

Directly, absolutely. I mean, I would argue the big two when it comes to what the Federal Reserve looks at is inflation, so CPI, and then the jobs data. So the less data that they have, the less informed of a decision that they can make, this could affect their next Federal Reserve meeting. Maybe they just hold. Maybe they don't cut rates like they were originally thinking because they're just sort of going in blind here and maybe no action is better than inappropriate action. So that's a big one. The stock market's keeping a close eye on what the Federal Reserve does here at their next meeting and whether or not they pivot with just sort of a lack of data.

Yeah. Yeah. So government shutdowns, how long do they typically last? I remember, was it 2018? We had a pretty big one. Yeah.

2018, that one actually lasted 35 days. So that was the last time Trump was in office. That one stretched out for quite a bit. Wow. So overall, since 1976, there's been 20 government shutdowns that have lasted a day or more. So some of them, it's just, you know, a couple hours and then it gets signed at two in the morning and didn't really affect anything. So lasting a day or more where things were actually shut down, there's been 20 of them since 1976. So, you know, we've talked about what is directly affected by the government shutdown. So now let's sort of pivot a little bit over to how the stock market feels about shutdowns. It's done well so far. Yeah. Yeah, so this one's gone just fine. We were just talking before we got on that the market was up for many, many days in a row. Yeah, eight days in a row. So, so far, the stock market doesn't mind. And there's a much longer discussion and maybe a whole podcast topic just about government spending. Yeah. how that will affect the United States in the long run. And if there are some cost savings, that means that there might be more of an appetite for U.S. government debt because our debt is potentially shrinking a little bit because there are some people laid off. The more demand there are for U.S. government bonds, the longer the government can keep going like it's going right now where they're spending more money than is coming in. So we'll tackle that topic another day maybe. But basically with the stock markets overall, normally they can look through the noise and there's usually like a little bit of a short-term drop in GDP, which is gross domestic product, just how much the United States is producing. But typically, and past performance can't predict future performance, but typically there is a little bit of a drop during the time period of the government shutdown, but usually a backlog builds up and then eventually it gets processed and then eventually things bounce back. So yeah, But we're looking at 20 instances that were a day or two in most of those cases. So that's not that much of a ripple potentially. But looking at historically all of the shutdowns, they're not super long. But what if we do get a long one, then that might change things a little bit.

Yeah, yeah, exactly. And I want to point out for our listeners out there, and just so we cite our sources, a lot of the data, especially that we're talking about, comes from the Congressional Research Service and Morningstar. especially when we're talking about the markets. There's a lot of great data there that I know you use to help your clients, Morningstar and Congressional Research Reports, things like that. So the markets are interesting. It always surprises me. I would assume a government shutdown would cause some dip in the market, but it didn't. And it didn't this time, especially. But like you said, usually the market forges through. I mean, it's been the market, at least in the last, I don't know, since 2022, it's been really resilient. And we had that one down year 2022, but it's been pretty resilient since COVID. Yeah.

It has. I mean, even so, there was a little drop in 2018 and the fourth quarter of 2018, the market dropped about 20 percent. But then after that, it's been off to the races. In 2018, the market dropped primarily because the Federal Reserve decided they were not going to continue reducing interest rates. So, you know, that one decision to pause quickly. roughly caused the market to drop 20%. But since then, 2019, and even through COVID, you know, that was a very rough experience for everybody. And the market dropped almost 40%. But then it made it all back and then some by the end of the year.

Yeah, in a short time. I mean, within the same year, it made it all back and then some. Had you stayed in the market, a lot of people panicked during COVID and pulled everything out. Had they stayed in, not only would they have been okay, they would have done quite well.

Yeah. Yeah. So talking about government shutdowns, like I've got the list here of every government shutdown that's occurred in the last 20 years. Right. Like a couple highlights would be that during the shutdown in 1979, it lasted 12 days and the market dropped 4% during the shutdown.

Hmm.

But then three months later, the market was actually up 5%. So it dropped. And then so that sort of follows that that trend that I was just talking about. But in 1981, the market was basically flat during the shutdown. But then three months later, it was down 8%. Even six months later, it was down 6%. But then just one year later in 1982, the market was up 1% during the shutdown. And then it was up 15% three months later and up 25% six months later. So, you know, it's sort of a mixed bag. You don't know exactly what you're going to get. And that's... The average gain or loss, so this is what it all boils down to, Tony, the average gain or loss in the stock market during a government shutdown over the last 20 instances is, during the actual shutdown, 0% movement.

So like if you look at. Yeah, that's that's crazy. Yeah. So it's really not affected.

In other words, not really. No. And three months later, on average, the market's up two point six percent. Six months later, on average, the market's up seven point five percent. And looking at like the percentages, average time that the market is positive during a government shutdown is 50 percent. Right.

What is all that that you just said? Tell us. It tells me anyway, that government shutdowns really don't affect the market. And those ups and downs you cited like three months after, you know, or what it is during what it is three months after those are affected by other things. The market is being affected, but by other things at that point, probably not the government shutdown. That's what I get from that. But again, You know, it's, you know, it's easy to look back and say, well, what does the data tell us? And that's smart. You have to do that. But at the same time, you know, nobody knows. Nobody has a crystal ball. And the markets seem pretty resilient. And it's really based on the performance of the companies that are in the stock market and their outlook and their performance. So.

Yeah. Yeah. And again, past performance can't predict future performance. But if you look at all of these government shutdowns six months later, the market was higher 70 percent of the time. Yeah. So the odds definitely favor. The odds are the odds are positive in the on the positive side.

And I would even argue that the government shutdown probably doesn't affect the market. good or bad, but at least looking back, it's been good. So what caused that? I don't know if it has anything to do with the government shutdown. That's my point is like the government shutdown seems to be a fairly non-entity. Now, I don't know. I mean, you could look at that one year, like in 2018, I don't know, 35 days, you know, we might see something happen, but because that's a long time.

Yeah, that one is a good one to point out, Tony. So yeah, the market, or I'm sorry, the government was closed for 35 days. The stock market over that period of time was up 10% over that month. And then six months later, it was up 14%. Wow. So didn't affect it negatively. That's good. No. Good.

Well, the news is positive then. It is good, though, to look at these numbers, and I'm glad you brought this. And you're staying on top of it because you're like, okay, is this going to affect my clients and their money and the money that we help manage for them and assets under management? So, yeah. Yeah.

Yeah. I mean, we were talking before the show. I feel that one of our largest competitive advantages is that we do look at our actively managed portfolios every day. We have a number of risk indicators. And when those risk indicators start to turn red, we will actually dial back the risk. Yeah. which if the market were to drop at that point, there's a chance that we would help to mitigate that risk by reducing our stock exposure. So anything's possible, of course, but by keeping our eye on the ball, it's... It's possible, financially speaking, someone could sleep a little bit better at night knowing that their financial advisor is keeping such a close eye on things and has the ability to reduce risk.

Right. And you don't want to be doing that yourself. If you look at the market and what it's doing every day, you'll end up making emotional decisions that are not accurate or will cost you in the long run. People who do that... Uh, you know, they end up buying high and selling low 99% of the time. I think the status are 95%. It's a lot. So don't do that.

Anecdotally speaking, like human emotions work against you when it comes to investing. Cause when, yep. Everyone's really scared, you know, when you're fearful, that's when you want to sell. So, yeah, one of the things that we look at is called the fear greed index. So when when people are greedy or if, you know, you can Google search that indicator, it's a great free indicator that's out there. But, yeah, when it's a greed or extreme greed indicator. Sometimes that's a good time to sell high. You know, it's usually not a bad time to sell.

When people are greedy, you sell when people are. What's the quote? That's the quote. When there's blood in the streets. I think it was that Warren Buffett said that. Yeah. Yeah. That's a good time to buy typically. Yes, exactly. So there's fear. And when people are fearful, you do. Yeah. His quote was when people are fearful, you you buy when people are greedy, you sell. I think that's what he said. So but, you know, that's that's blanket advice. You know, he's he's in a position to be able to say those things. You want to make sure you're working with a trusted financial services professional, a fiduciary who's going to look out for your best interest because everybody's situation is different. Right.

Yeah. Yeah. And we'd love to offer our listeners and viewers an opportunity to sit down with me or one of my team members. We'd be happy to go through your current investments. We're actually putting a brochure together right now that says the market's at all time highs. Now what? And it's a great time to get a second opinion because sometimes what goes up must come down at some point. and switching to someone who's going to keep an eye on it more regularly could potentially be a value add. And then we'll look at what fees a person's paying, what fees they can't see, hidden fees inside their investments. We'll put it through a stress test and see how it did in good times and bad times. So if you sit down with us, it's not sales materials. It's not our opinion. It is just an independent analysis of what you have going on. And if we're Potentially a value add. We'll let you know and maybe it'll work out. But between our auto and homeowners insurance quotes, our health insurance services, helping people quote that out with every company, tax preparation, tax analysis, retirement income analysis, figuring out how much you should convert from IRAs to Roth IRAs each year as you get into and approach retirement. And then of course, managed portfolios. There's a lot of things that we can do and we don't charge for meetings or phone calls. So we'd be honored if you gave us a call. You can reach us at 586-226-2100 or visit us on the web, summitfc.net.

All right. Thanks so much, Ken and listeners. Thanks for tuning in. That does it for today's episode of Money Talks with Summit Financial and our host, Ken Wink. Thank you for joining us for Money Talks. Don't head into retirement without a strategy that addresses both income and taxes. For more information, please contact Ken Wink at Summit Financial, working with people you trust. Call 586-226-2100 or visit summitfc.net. Join us again soon for another episode of Money Talks.