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Browse: Home / The Fed, Government Shutdowns & the Winter Solstice

The Fed, Government Shutdowns & the Winter Solstice

By Joe Pitzl on December 20, 2018

The end of this week marks the winter solstice. There is not a lot about that specific day to be excited about. On one hand, it is the darkest and shortest day of the year. On the other, it is the middle of winter, so it’s cold! As an added kicker, this year we even get to find out that day whether our Federal government is going to be “shut-down” (again), but I digress. 

To me, the symbolic nature of this day is that it is essentially breathing life to a new year. Every day from this point forward is a little bit brighter, and it lasts a little bit longer. It is a great reminder that all dark and cold seasons come to an end. It also means we are getting closer to spring and warmer days again. 

This has not been the most fun quarter (or year) to be an investor. Almost everything around the globe is down. It suddenly feels dark and cold in financial markets and there is no shortage of scary headlines out there…especially if you go looking for them. 

But let’s face it, the market already knows about all the headlines. The market knows that the Fed will announce whether it will raise interest rates today, it knows about the potential government shutdown, it knows about Brexit. The collective knowledge of all market participants is reflected in current prices. 

The sooner we can come to grips with the reality that everything you are reading and concerned about is already priced into markets, the sooner we can stop worrying about short-term fluctuations and focus instead on the time-tested, disciplined process designed to work with your financial plan. 

When asked recently what economic news keeps him up at night, Vanguard founder Jack Bogle replied, “Nothing! If I thought staying up at night would solve any great economic problem, by God I would stay up all night!” 

So, are we at the market’s version of the winter solstice? Of course, the answer is we never really know. We don’t know if the Fed will announce a rate hike today or not. We don’t know if the government is going to be shut down at the end of this week. 

And for whatever it is worth leading into Friday, there have been 20 government shutdowns since October 1, 1976. What the historical data tells us is that 47% of the time, markets declined the week after the shutdown. 53% of the time, markets increased. Therefore, even if you were to know whether a shut-down is going to occur, that knowledge doesn’t help much! 

What we do know, however, is that for each and every one of you, based on your specific situation and circumstances, we would be very comfortable with your current portfolio allocation if markets closed tonight and did not re-open until 5 years from now.

Posted in Economy, Investing, Stock Market, Volatility | Tagged economy, stock market, volatility

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