I was wrong. Yesterday, the government officially starting shutting down and I predicted it wouldn’t happen. But despair not; I also predicted that if the government did close its doors the market might not fall into a tailspin.
One out of two ain’t so bad.
On Monday the S&P 500 climbed 13 , the NASDAQ galloped ahead by 46 and the NYSE moved 62 points ahead. Why? There are 3 possible reasons to explain why the market did well despite the partial government shutdown.
1. The Government Is Only Part of The Story
The government is an important part of the economy – but (so far) it isn’t the entire economy as measured by GDP. Private business and consumers make up a far larger segment of the economy than the government. At this point, businesses are reporting better profit and consumers as a whole are doing better as well. I acknowledge that our government is crippled with high debt and people who don’t know how to work together. Thankfully, private business and consumers are doing far better than the kids in D.C.
2. No Surprise
Clearly, the market is far better at predicting the future than I am. It’s possible that the market saw this coming weeks ago and that’s why it struggled over that period. The day of reckoning may have come as a surprise to me and many others, but it was old news to Mr. Market.
3. Couldn’t Care Less
When the government started closing non-essential services the market saw that it wasn’t the end of the world. I don’t know about you but my day was about the same as any other. On a relative basis, the closure didn’t impact many people.
4. Bonus Reason – It Just Did
The truth is nobody knows why the market goes up or down in any particular day, week, month or year. It just does its thing and it’s impossible to predict or explain.
Valuable Take-Away – Don’t Make Predictions
This is a critical point and one that can save you a fortune in the future. The next time you hear someone predict what is going to happen in the market should a certain event take place, ignore that person. Remember what happened yesterday. Remember that nobody knows how the market will react to a given event. Nobody. If I liked tattoos I’d ask you to tattoo 10-1-2013 on yourself just so you’d remember.
The partial government shut-down impacted about 800,000 government workers. That is a big number. It’s a lot of people who unfortunately have to face some real financial burdens. But in a country of almost 400 million, it isn’t catastrophic. The cost of this shutdown has been estimated at $300 million a day. That is a lot of cabbage but it isn’t even a drop in the bucket for our economy of $14 trillion.
If our leaders are unable to find a compromise, the shut-down could continue. That will be a drag on our economy and be reflected in the market sooner or later. Time will tell. For my money, I prefer to let the market guide my investment decisions rather than try to outsmart it.
Where do you stand?