Written by Wes Crill, PhD
Senior Investment Director and Vice President, Dimensional Fund Advisors
The US government temporarily averted a shutdown after the House and Senate passed a 45-day funding deal on September 30. But the specter of a shutdown still looms if a longer-term funding resolution fails to materialize before the stopgap ends. The US government has faced 14 funding gaps since 1981, Ten of which resulted in shutdowns. (See Exhibit 1 and Note 1.)
Exhibit 1 A History of Halts Funding gaps lasting at least one day since 1981
Funding-gap and shutdown dates are sourced from the US House of Representatives: History, Art & Archives. During these shutdowns, many nonessential functions of the government cease. In most cases, the fiscal shortfall was resolved within a few days. Some impasses, like the December 1982 episode, lasted merely a weekend. However, four shutdowns lasted at least five days. How did stocks fare during these prolonged episodes? The US market ended higher at the conclusion of three and was flat in the other. So, while a shutdown may be a nuisance, (See Exhibit 2 and Note 2.) history suggests it’s probably not cause for concern in your portfolio.
Exhibit 2 Open for Business Growth of wealth for the Fama/French Total US Market Research Index during government shutdowns lasting at least five days since 1981
Past performance is no guarantee of future results.
In US Dollars. Data presented in the growth of $1 chart is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The chart is for illustrative purposes only and is not indicative of any investment. Data is provided by Fama/French. The Fama/French index represents academic concepts that may be used in portfolio construction and is not available for direct investment or for use as a benchmark. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. See “Index Description” for a description of the Fama/ French index data.
This article originally appeared in Above the Fray, a weekly newsletter for Dimensional clients.
NOTES
1. The appropriations process through which the federal government budget is allocated became stricter about shutting down government operations in the event of a funding gap after legal opinions issued in 1980 and 1981.
2. Especially for those with travel plans, since the impacted services may include the Transportation Security Administration (TSA).
Fama/French Total US Market Research Index: Fama/French Total US Market Research Factor + One-Month US Treasury Bills. Source: Kenneth R. French—Data Library (dartmouth.edu)
.
The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Dimensional to be reliable, and Dimensional has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, a recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is appropriate for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized reproduction or transmission of this material is strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.
This material is not directed at any person in any jurisdiction where the availability of this material is prohibited or would subject Dimensional or its products or services to any registration, licensing, or other such legal requirements within the jurisdiction.
“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are
Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund
Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
UNITED STATES
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
Investment products: • Not FDIC Insured • Not Bank Guaranteed • May Lose Value Dimensional Fund Advisors does not have any bank affiliates.
Comments