So here we are. The government shutdown is a fact and has entered its third day at the time of this writing. Even though the House of Representatives passed a continuing resolution last Thursday that would ensure the federal government to be funded until mid February, it is not likely that this resolution will pass the Senate. The Republican and Democratic lawmakers have now started a battle over immigration protections and spending on a Mexican wall — whoever blinks first, loses. A deadlock you wouldn’t expect under the presidency of a man who claimed to be ‘the greatest deal maker in the history of our country’. Some would say that instead of fixing Washington and draining the swamp, he drained Washington and fixed the swamp.
For investors, what matters most is the potential impact of this situation on the markets. According to an article on MarketWatch published last Friday, “Investors may not need to worry too much, as past shutdowns haven’t corresponded with significant stock-market selloffs”. But just looking at past shutdowns may not cut the mustard this time. Right now, more than ever before, sentiment is what matters. It has been the extreme level of optimism that has pushed the market to the level where it is right now. (Sky) high hopes and expectations combined, have formed the fuel that vaulted this booming stock market almost into the stratosphere. A potentially explosive situation: anything that throws a spanner in the works, could make this sentiment turn negative. And when that happens, this long smooth market rally may backfire.
Seemingly undisturbed by worries the federal government would be forced into a shutdown at midnight, all US indices finished higher on Friday. The NASDAQ and the S&P 500 even managed to close at new record highs. The Dow was up 0.21% for the day, the S&P 500 0.44%, and the NASDAQ 0.55%. The markets rallied on in this holiday-shortened third trading week of the year: the S&P 500 gained 0.86% for the week, and the Dow as well as the NASDAQ 1.04%. Volatility rose during the week. Coming from single digit levels the week before, the VIX settled around the level of 11 last week (with daily spikes above the level of 12), closing at 11.27 on Friday — a rise of 11% for the week. UVXY ETFs slid by 0.95% and XIV ETNs gained 0.35% Friday.
Danny Daredevil ended the week with an RSS of -7%. Adventurous Anny´s RSS remained unchanged at 23%, as she is still holding a cash position. Solid Suzy and Lazy Larry saw their RSS rise to 112%.
None of our models gave a trading signal at the end of Friday’s session.
RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return
A new sudoku.
Plus the solution to the previous one.
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