Tags: government | shutdown | stock | market

Analysts: Govt Shutdown Is Either a Stock Buying Opportunity or a Disaster

By    |   Monday, 30 September 2013 10:50 AM

No matter if the government shuts down this week or not, many analysts believe the stock market will face a rollercoaster ride, MarketWatch reported.

By one historical measure, even if there is a shutdown, the damage could be temporary. S&P Capital IQ noted the last time there was a true government shutdown — from Dec. 13, 1995 to Jan. 10, 1996 — the S&P 500 slid 3.7 percent, only to push ahead by 10.6 percent by February, 1996.

But Phil Orlando, chief equity market strategist at Federated Investors, told Marketwatch stock sectors that have increased the most in recent months are also the "most vulnerable" if the government closes its doors.

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Orlando said those sectors are consumer discretionary, finance, technology, industrials and energy.

Frank Fantozzi, chief executive of Planned Financial Services, told MarketWatch investors should proceed with caution when it comes to stocks that are dependent on government business.

In a recent client advisory, Goldman Sachs agreed, suggesting investors buy puts on stocks with high government contract revenues as a shutdown hedge. Those stocks include Harris Corp., Granite Construction, Flir Systems, Waste Management and Republic Services.

Barclays analysts state that "the perpetual conflict and political discord of recent years has led to increased uncertainty, sizeable fiscal drags in the resolution (e.g., sequestration) and temporary market disruptions. In other words, recent experience tells us the risk need not be fully realized in order to affect financial markets; walking close enough to the edge is sufficient," according to MarketWatch.

Evan Lucas, market strategist at IG, told CNBC investors could face a violent reaction in global financial markets with a shutdown.

"The blind optimism over the last month will evaporate and that makes us nervous about the next four weeks of trading. Trade is going to shift quickly and sporadically," Lucas predicted.

But Clifford Bennett, managing director at White Crane Group, told CNBC that a shutdown could be a buying opportunity. Bennett suggested investors buy bargains in oil and resource stocks, including gold.

Meanwhile, financial advisers contacted by Investment News predicted the psychological impact on fretful investors of a potential government closure is more worrisome than any real economic impact.

"You're dealing with investor and market psychology more than anything else," Robert Henderson, founder and president of Lansdowne Wealth Management, told Investment News. "It creates tons of headlines, and that, I think, in the short term is the biggest risk."

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Related Stories:

Business Groups Beg for No Govt Shutdown

Banking Expert: Obama Should 'Let the Government Shut Down'

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No matter if the government shuts down this week or not, many analysts believe the stock market will face a rollercoaster ride, MarketWatch reported.
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2013-50-30
Monday, 30 September 2013 10:50 AM
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