Risk assets (stocks) bucked the usual bearish seasonal trends in September, with technology and US small caps leading the way. The S&P 500 and Nasdaq 100 both outperformed, extending gains from their post-Liberation Day lows. Gold surged 10% to a record monthly close, oil lagged, and global equities including emerging markets delivered solid returns.
Despite macro uncertainty, large-cap earnings growth has been strong, supporting continued equity momentum into Q4. Further Fed rate cuts appear likely, and fresh earnings reports arrive in less than two weeks.
Against this backdrop came Washington’s latest drama. For the first time in seven years, the US government is shutting down after Democrats refused to back a Republican plan to extend funding without concessions on healthcare. Federal workers are furloughed, lives disrupted, reports delayed. It is messy, no denying that.
What about markets? They have barely flinched. A slight dip, yes, but no real panic. Investors have seen this show before. Shutdown threats are common, most do not happen and when they do, they rarely last long enough to derail earnings or the economy.
The most recent federal shutdown was from December 22, 2018 to January 25, 2019, the longest in US history. On average, the S&P 500 has gained 13% a year after, including an 11% rally during that period.
I’m stick with my plan and remember that Washington politics is a lot like Netflix. Once you have seen a few seasons, you already know how the plot goes.