Forecasts Of Shutdown Doom Don’t Play Out Too Often

First, there’s always something to worry about in markets. And pundits have made sure to let us know the shutdown is a problem. But I’ll show you how forecasts of shutdown doom don’t play out too often.

Brief Moments in History

Before the current shutdown, there were 16 federal government shutdowns since 1978. The most recent ones were in September 2013, January 2018, and December 2018.

How did the S&P 500 index (SPX) do during those times?

Looking at the chart, it doesn’t seem the shutdowns were market-shattering events. Rather, these brief moments in history were parts of the market pushing higher over time.

What can we learn? One lesson is shutdowns didn’t shut down markets or the world when they happened. In fact, it seems they’re bullish setups.

Since 1978, the S&P 500 has performed just fine on average during and after a government shutdown:

• The average shutdown lasts 12.5 days.
• A week before a shutdown, stocks dropped 0.2%.
• Stocks returned 0.8% during the shutdown.
• A month later, stocks gained 2.1%.
• Three months later, markets jumped 4.2%.
• Six months later, equities climbed 9.7%.
• A year later, in 15 of 16 observances stocks gained 16%.

Don’t let shutdown or government funding fears steer you off course. Stocks see through the short-term blips and climb higher, on average.

Immense Appetite for High-Quality Technology Stocks

With interest rate cuts from the Federal Reserve seemingly on the horizon, there are multiple areas of the economy that could rise as a result. One that’s worth examining is semiconductors.

MoneyFlows data has shown an immense appetite for high-quality technology stocks. Semiconductors are definitely a part of that interest.

It makes sense because the AI revolution is in full swing. We can see that in the incredible 81% gain in the S&P 500 Semiconductors & Semiconductor Equipment Index from the April 8 lows:

Semiconductors are a key piece of the global economy. They’re prevalent in tech (obviously), but also in health care, industrials, and more.

Combine lower rates with the AI revolution and there’s a path for massive equity gains ahead. That could bode well for semiconductors and exchange-traded funds like the VanEck Semiconductor ETF (SMH), which is loaded with high-quality names:

SMH has been drawing Big Money inflows, which we can see in its 42.6% year-to-date return. And there could be more ahead.

Focus On High-Quality Names

Don’t let this situation make you skittish. It’s a great time to buy quality stocks, historically. That’s especially true of tech stocks, and semiconductors in particular, as this area offers foundational economic importance.

Make sure to focus on high-quality names with excellent earnings and increased guidance. MoneyFlows can help you spot these winners.

If you are a Registered Investment Advisor (RIA) or a serious investor, take your investing to the next level and follow our free weekly MoneyFlows insights.

Disclosure: the author holds no position in SMH at the time of publication.