With the month and quarter ending Tuesday, the stock market has obviously withstood the "September Scaries" that I have been focusing on coming into the month. Now, stocks enter what has historically been the best three-month period of the year. Moreover, as Bespoke Investment Group notes, the market tends to do even better in the fourth quarter when it is up through the first three quarters of the year (which shouldn't come as a huge surprise). As always, seasonality and historical tendencies guarantee nothing and should only be used as a guide (see lack of downside in September), though history does seem to offer yet another tailwind for the market through the rest of 2025.
Tuesday night, a government shutdown appears to be the next possible stumbling block for the market, though historically, these shutdowns have been of questionable importance to stocks. According to Edward Jones research, there have been 20 shutdowns since 1976. The media act like the nation will cease to function, turns out, it functions just fine. They have lasted an average of 9 days and produced an average return of...0.0% in the S&P 500 – literally no change. The worst performance during a shutdown was only -4%, and looking out 6 months after the shutdowns, the S&P has been up an average of 7.5%, better than the typical returns over half a year. The last shutdown back in 2018 was the longest in history at 35 days, and the S&P actually rallied 10% during that time. With the stock market seemingly "overdue" for a pullback, few would be surprised if it did so to coincide with a shutdown. Yet, history suggests any damage will be fleeting. See the table below of all 20 shutdowns. I include this for those history buffs that are entertained by tying the date to something they remember:
At the risk of upsetting both sides of the aisle, I just don't think politics is nearly as important to the financial markets as many believe it to be. While that seems to be all that some think about these days, viewing everything through a partisan lens, the market is largely unbothered by 99% of the goings on in Washington.
Yes, obviously policies can have some direct impact on occasion, such as when destabilizing tariffs are first announced and then walked back, but for the most part, most of what occurs in D.C. just does not significantly impact the day-to-day operations of companies or materially alter their future earnings. The bull market in stocks since 2009 has endured through three different presidents and a mix of leadership from both parties. It has not mattered. Going back further, the impacts of politics seems to be even less of an issue. According to NASDAQ.com, from 1957 when the modern S&P 500 was created through July 3, 2024, when their study was performed, the median compound annual growth rate (CAGR) for the S&P was 10.2% during Republican terms and 9.3% under Democrat terms.
Truthfully, there has been little difference under the two administrations and shutting down the government has not historically shut down the stock market. Don't let politics get in the way of your portfolio.
- Ken South, Tower 68 Financial Advisors, Newport Beach
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