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Potential Government Shutdown Doesn’t Faze Market

Stocks continued a torrid march higher, inspired by early earnings results and un-fazed by threats of government shutdown. Temporary government funding is set to run out of money tonight (Friday), though lawmakers remained optimistic about reaching an agreement to extend it. All of the major equity market trends from 2017 were followed – international stocks modestly outperformed, small cap lagged, technology led, and utilities lagged. Apple announced it would repatriate the vast majority of its $252 billion overseas cash hoard and pay $38 billion in taxes – a victory for President Trump. GE fell 10% on more bad news related to its legacy insurance division.

Weekly Returns:

S&P 500: 2,810 (+0.9%)
FTSE All-World ex-US: (+1.0%)
US 10 Year Treasury Yield: 2.66% (+0.11%)
Gold: $1,332 (-0.5%)
EUR/USD: $1.222 (+0.2%)

Major Events:

  • Tuesday – GE said it would take a $6 billion charge and set aside $15 billion in reserves related to its GE Capital unit. The CEO said he was open to breaking apart the company.
  • Tuesday – Celgene was said to be in talks to acquire Juno Therapeutics.
  • Wednesday – Bitcoin briefly dropped below $10,000.
  • Wednesday – Apple said it would make a one-time $38 billion tax payment to repatriate overseas cash.
  • Thursday – IBM reported revenue growth for the first time since 2012.
  • Thursday – Home Security Company ADT priced below expectations in its IPO.
  • Friday – Chuck Schumer said he made progress in talks with President Trump on avoiding a government shutdown, but differences remain.

Our Take:

I’m writing this on the afternoon of Friday the 19th. Unless something is done, temporary government funding will run out tonight and parts of government shutdown will begin. Most likely, by the time you read this, another temporary solution will be agreed upon. The market certainly seems to think so – stocks were up and rallied into the close. But it isn’t guaranteed.

It wasn’t long ago that fears of government shutdown would rattle the markets at least a little. These days it feels like nothing can shake confidence. The biggest drop for all of 2017 was 3%. We view this as a double edged sword. To the extent that investors have learned that trying to time short-term corrections is generally a sucker’s game – it is a good thing. However, if investors have become so sanguine that they no longer expect any volatility and are underestimating the risk level in their portfolio or the amount of risk tolerance they have – that is a bad thing. For now, the party rages on.

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