03|04|2016

Gov’t shutdown in a capitalist society, why are we worried?

I’ll tell you why we’re worried, a 4 week government shutdown is estimated to cost us nearly 1.5% in 4th quarter GDP.  A GDP that has already been hit by sequester earlier this year and still has a debt ceiling coming up in a few weeks… So what now?

The GDP that was anticipated for the 4th quarter was 3%, had there not been a Government shutdown.  The U.S. has been running at a much lower GDP during this current expansion, more along the lines of 2%.  While a 4th quarter GDP of 3% would have been nice, losing .5% or 1% of that will not end this expansion. Truly the slow nature of this current expansion as opposed to a typical expansion, averaging in the 3% range, could actually spell a longer than typical expansion since there is no over- heating in sight for this economy.

While the market has surely responded to Washington’s antics over the last couple of weeks, there have been several economic releases worth celebrating that have gone for not thanks to Washington:

  • Jobless claims falling to a 6 year low
  • Personal income grew faster than expected. Personal spending grew at nearly an equivalent rate.  The importance of this cannot be ignored as consumption makes up 70% of our economy.
  • Year over year home price rose 12.4% in July
  • Q2 GDP remained unchanged in the most recent revision at 2.5%
  • Eurozone business activity has moved back into the range of expansion.

As the volume gets turned down on the activity in Washington, sometime over the 6 weeks, there will be much to celebrate about regarding items that directly impact the markets.

Something to bear in mind is that an un-aligned legislative and executive branch (politically) typically produces the most lucrative equity market environment because of their in ability to get anything done.  Their inaction allows the market to focus on the markets…  Those returns don’t come without their trying periods such as this week.

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services.  Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.

If you would like an in-depth analysis of your current positions and allocation, please feel free to call Jason Roque at 719-313-7536 to schedule an appointment.

Sources: mfs.com, oppenheimerfunds.com, and morningstar.com

* Financial Action, Inc. is a Registered Investment Advisor.