Imagine the United States of America can’t pay its bills. That would be a pretty scary proposition. This sounds inconceivable, but it’s not without precedent.
What this could do to the economy and the stock market is anybody’s guess, but there is probably less cause for alarm than you might think.
That’s because the market does a good job of pricing in risk events that have a date associated with them. Risk usually happens when investors get blindsided by news they did not expect or news that is worse than expected.
The table below shows all the recent government shutdowns alongside the S&P 500 during that time. Performance was green across the board during the shutdown period, and even in the months leading up to it, only 2011 saw a significant decline.
The government has until June to figure its shit out. Meanwhile, January just had a heck of a run. One doesn’t have a whole lot to do with the other, but there you have it.
I respect risk. I don’t mean to trivialize this. But with all that investors have to worry about right now, the debt ceiling is very far down my list.
How worried should we be if the debt ceiling isn’t lifted?