The internet, radio and other news sources are full of comments about the imminent “shutdown” of the government over funding questions as the new fiscal year is set to begin. Recent market activity has been trending downward due, at least in part, to the uncertainty surrounding government operations. Of course, government will not actually shut down and, even if some employees are temporarily furloughed, most of us will not notice much change in our day to day lives.
Clients, investors and even advisers are not comfortable with this uncertainty. It is important to make sure that people do not over-react to the stories, though, since a short term “shut down” has happened several times before and the impact has not been significant. Of course, the markets seemingly react in strange ways to news of this type and it is quite possible that the downward trend will continue and perhaps even increase. What then?
First, given the very good results in the markets so far this year, a pullback is probably a good time for clients to take some profits, harvest losses and rebalance their portfolios. Second, it is important to remind the nervous folks that essential services continue uninterrupted – national defense, government benefits (such as social security, food stamps, pensions, and more, even Congress (!)) will continue in operation. Third, basic services for advisers such as the ability to file registrations with the SEC, will remain available, though there may be a temporary break in non-essential audits and the like. Finally, even if a client is a non-essential government employee, past furloughs have been short and typically with pay so no negative lasting results may occur.
Perhaps the best course for the moment is to wait and see and not rush into any trading that is not already planned out. Plenty of other items remain on the table in the near term such as the next meeting of the Fed, quarter and month-end results, other activities of Congress and more. The phrase keep calm and carry on seems to have applicability here.