Washington Woes…Again

There is no way to accurately assess the impact of the US government shutdown that began today, since we do not know how long it will last. In the past, such shutdowns have been short-lived and have not had a major economic and market impact.

In the 11 previous government shutdowns since 1981 (display), most of which have lasted three days or fewer, the effects on stock performance were generally modest. If this shutdown lasts for some time, the potential economic and market impact could be more severe.

Most Prior Shutdowns Had Only a Modest Effect on S&P 500 Index Returns

Approximately 800,000 federal employees out of a workforce of about 2.9 million were furloughed. While essential services will continue to be funded, many nonessential activities will be shuttered. The shutdown will not affect the government’s ability to service its debt or maintain essential programs that have dedicated funding, such as Social Security, Medicare and Medicaid.

In assessing the potential effects of a shutdown, it is always important to consider the state of the underlying economy. In this case, the signals at the end of the third quarter remain solid: unemployment has been reduced, the housing markets have improved significantly, economic growth and corporate earnings continue to be solidly positive, and the Fed remains extraordinarily accommodative.

On the negative side, the inability of Congress to reach a budget agreement and the now-looming debt ceiling increase the possibility of another credit downgrade for the US. While the initial downgrade of the US by Standard & Poor’s had little market impact, a second downgrade has the potential to spur a more negative reaction in the markets. In addition, none of these short-term issues speaks to the long-term budget imbalance.

Don’t Shut Down Your Long-Term Investing Plan

Despite the current political wrangling, the private sector is continuing on a healthy path of economic recovery, with many companies displaying robust fundamentals. Consequently, we caution investors not to overreact to the “sound and fury” out of Washington, at least at this point in the shutdown, which may be short-term, as so many past shutdowns have been.

Expect Heightened Volatility

We believe that the current shutdown and the impending battle over raising the US debt ceiling this month will contribute to a rise in market volatility over the next several weeks. Today’s political intransigence does need to be watched, however, especially its implications for the debt-ceiling debate and its potential impact on the economy and markets.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio managers.

Seth Masters

Chief Investment Officer—Bernstein
Seth Masters is Chief Investment Officer of Bernstein. He heads the team that provides customized wealth-planning advice and manages the firm’s private client portfolios. Masters was previously CIO for Asset Allocation, overseeing the firm’s Dynamic Asset Allocation, Target Date, Target Risk and Indexed services. In June 2008, he was appointed head of AllianceBernstein’s newly formed Defined Contribution business unit, which has since become an industry leader in custom target-date and lifetime income portfolios. Masters became CIO of Blend Strategies in 2002 and launched a range of style-blended services. From 1994 to 2002, he was CIO of Emerging Markets Value Equities. He joined Bernstein in 1991 as a research analyst covering global financial firms. Masters has frequently been cited in print and appeared on television programs dealing with investment strategy. He has published numerous articles, including “The Case for the 20,000 Dow”; “Long-Horizon Investment Planning in Globally Integrated Capital Markets”; “Is There a Better Way to Rebalance?”; and “The Future of Defined Contribution Plans.” Masters worked as a senior associate at Booz, Allen & Hamilton from 1986 to 1990 and taught economics in China from 1983 to 1985. He holds an AB from Princeton University and an MPhil in economics from Oxford University. He is fluent in French and Mandarin Chinese. Location: New York

Dianne F. Lob

Senior Managing Director—Equities
Dianne F. Lob was named Senior Managing Director for Equities and Head of Global Business Development in 2014. She focuses on the global sales strategy for AB’s broad equity platform, as well as new product development, thought leadership and the creation of marketing materials. In addition to coordinating globally with the Institutional, Retail and Private Client teams, Lob works closely with the head of equities on the business’s profit and loss statement. From 2010 to 2015, she was the President and a Director of the Sanford C. Bernstein Mutual Fund Board. From 2004 to 2014, Lob was chairman of Bernstein Global Wealth Management’s Private Client Investment Policy Group, responsible for asset allocation and investment strategies in the Private Client business. Prior to joining the firm in 1999 as a senior portfolio manager, she spent 22 years at J.P. Morgan, where she was a managing director and investment banker specializing in providing mergers and acquisitions advice and debt and equity financing for large-capitalization industrial companies. From 1991 to 1995, Lob was a senior member of the team that built J.P. Morgan’s equity business. Previously, she held various positions in international corporate finance, interest and currency swap marketing, lease advisory services, and media client banking. Lob holds a BA in economics from Tufts University and an MBA from the University of Chicago Graduate School of Business. She is on the board and is Head of the Endowment Committee of HIAS, a refugee rescue and resettlement organization. Location: New York

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