Once again, we are hearing about the need to increase the debt ceiling and a possible government shutdown. These events are not unprecedented, yet for many, the concepts of the debt ceiling and government shutdowns can be confusing and overwhelming. Shutdowns are not uncommon; the U.S. government has shut down a total of 21 times since Congress introduced the Congressional Budget and Impoundment Control Act, which established the federal budget process in 1976.

The debt ceiling is the maximum amount that the government can legally borrow to meet its financial obligations. If Congress fails to approve a budget or continuing resolution, the government must shut down all but essential services. The relationship between these two events is complex, and their impact on the economy can be significant but not unprecedented. These events will have little effect on investors who are well positioned with a good plan.

Increases to the Debt Ceiling: A Brief History

U.S. debt ceilings date back to 1917, but it wasn’t until 1939 that they were codified into law. With the most recent hike in August of 2022, Congress brought the debt ceiling up to a whopping $22 trillion.

In recent years, raising the debt ceiling has become an increasingly divisive political issue, with both parties using it as a negotiation point. In 2011, the United States came perilously close to defaulting on its debt due to the debt ceiling crisis, which resulted in a sharp decline in the stock market and a downgrading of the country’s credit rating.

In 2013, a disagreement over funding for the Affordable Care Act caused a shutdown that lasted for 16 days. As a result of these developments, there have been further calls for the debt ceiling mechanism to be reformed.

Shutdowns in Government: A Brief History

When Congress fails to enact a budget or continuing resolution, the government temporarily stops providing services that aren’t considered essential. The first shutdown happened in 1976, but they’ve been more common as of late.

There have been a total of 21 government shutdowns, with the most recent in December 2018. The shutdown lasted 35 days, from December 22, 2018, to January 25, 2019. It was the longest shutdown in U.S. history. The cause was a disagreement between Congress and the president over funding for a border wall between the United States and Mexico.

When federal workers and contractors aren’t getting paid because of a shutdown, it can have a negative effect on the economy as a whole — and they may impact consumer confidence and be negative fodder for the media — yet shutdowns have historically had little impact on the stock market.

An LPL Financial study that examined stock market activity over 18 government shutdowns, spanning the period from 1976 to 2013, found that shutdowns have had no impact on performance — the median change in the S&P 500 was 0.0 percent. In fact, LPL’s senior market strategist noted that the S&P 500 has actually gained during each of five previous shutdowns.

Our Team Will Help You Prepare and Benefit from Uncertainty

As with any trending event, it’s important to step back and look at facts versus hype. Your financial plan should anticipate periods of volatility — including a government shutdown and/or debt ceiling — and ensure that you have cash to ride them out. Working with an experienced team can help you minimize stress and make decisions logically versus emotionally. With the proper guidance, you may be able to benefit from uncertainly around a debt ceiling debate and/or government shutdown.

We expect to hear the refrain from the media and pundits who are selling everything from newsletters to doomsday supplies that this time it’s different. It’s not. As stated, there have been 21 government shutdowns and virtually no impact on the stock market.

Our team has more than 250 years of combined experience with all kinds of market and economic conditions, including government shutdowns. We will guide you through whatever comes your way. Uncertainly can present an opportunity to benefit in the long run.

Please reach out if you have questions or concerns about current events or your portfolio or if we can otherwise be of service. Your vision is our priority, and your financial well-being is our passion. We look forward to connecting with you.

________

Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Carver Financial Services, Inc., was established in 1990 with the vision of making people’s lives better — clients, team and community. With this mission, Carver Financial Services has grown to be one of the largest independent financial services offices in the country, managing $2.3 billion in assets for clients globally, as of March 2023. You can reach Randy directly at randy.carver@raymondjames.com and in the office at (440) 974-0808.

Between March 8^thand March 12^th, 2023, three large U.S. banks failed, generating a lot of media attention. Many pundits wrote about the pending collapse of the U.S. banking system and dire consequences for the stock markets. Some compared this situation to the 2008 bankruptcy of Lehman Brothers on September 15^th, 2008, and the beginning of the Great Recession.

As they always do, prognosticators are claiming that this time, it’s different — they say that this time, we’re in real trouble. But this time isn’t different. We are not in trouble! The truth is, although the nature of risks and market downturns changes through the years, we can always prevail simply by having a sound financial plan in place, keeping some cash reserves available and staying the course.

You can almost always find opportunity within a crisis.

About the recent bank collapses

To put this in context here is an overview of the three bank collapses that occurred in the second week of March 2023:

• On March 8th, Silvergate, a California-based bank that made loans to cryptocurrency companies, announced that it would cease operations. Silvergate catered largely to cryptocurrency companies, including the failed exchange FTX. The media generally ignored the fact that this was a very niche situation.
• On March 10th, Silicon Valley Bank (SVB) was placed into Federal Deposit Insurance Corp. (FDIC) receivership. After prominent venture capitalists, including those from Peter Thiel’s Funders Fund, told customers to pull their deposits out of the bank, SVB was hit with a wave of requests for cash. By the end of the day on Thursday, March 9^th, depositors withdrew more than $42 billion. This was another unique situation.
• On March 12^th, state regulators closed New York-based Signature Bank, the 16^th-largest lender in the United States. A sudden and unexpected onslaught of customer withdrawals erased more than $100 billion in market value from U.S. banks. The FDIC took control of Signature, which had $110.36 billion in assets and $88.59 billion in deposits at the end of 2022, according to New York state’s Department of Financial Services.

Later on March 12^th, the U.S. Treasury, Federal Reserve and FDIC issued a joint statement saying that all the depositors of Signature Bank and Silicon Valley Bank would be made whole and announced actions to shore up deposits to try to prevent further fallout.

Yet no depositors have lost any funds, and again, Silvergate and Silicon Valley were niche situations and not indicative of the overall banking climate.

Avoid reacting to media reports

As we have said for three decades, the media often offer incomplete information, with a bias toward the negative and short-term aspects. This type of attention can create unnecessary anxiety and drops in markets, which cause many people concern. However, we believe market downturns provide a great opportunity for long-term investors.

We have seen this repeatedly — those who take advantage of dips benefit, while those who panic and/or sell permanently lose wealth. The key to be in a position where you do not need to sell. As always, we recommend having cash reserves and/or fixed income to cover 9 to 12 months of your family’s needs. Currently, there are some relatively high rates available for cash and cash equivalents, with money markets yielding 4.5% or greater!

When the markets take a tumble, it’s not all bad news. Some sectors of the economy actually tend to outperform others as consumer needs shift. These include health care and consumer staples stocks (or funds tracking those sectors), large-cap stocks and income investments.

Market volatility is normal and expected, contrary to media focus. Since 1928, this country has seen a market drop of 5 percent about every 2 months, on average; 10 percent about every 8 months; and 20 percent every 30 months.

Keep in mind that the media will often talk about a “points drop,” not a “percentage drop,” and as the markets move higher, this is more dramatic. For example, in June 2018, the Dow was at 24,000, so a 10 percent swing would be 2,400 points. Today, with the DOW at 32,000, a 10 percent swing is 3,200 points. Given the bank issues this month, the market moved a few hundred points, which is still relatively insignificant.

Have a good plan in place to avoid locking in losses

The key to building wealth is to avoid locking in losses. By having a good plan and good cash reserve you should never have to sell.

Here are some of the biggest news topics from 1981 through 2021:

1981    Beginning of steep recession

1982    Worst recession in 40 years

1983    Market hits new highs

1984    Record federal deficits

1985    Economic growth slows

1986    Dow nears 2000

1987    Record-setting market decline

1988    Iran hostage crisis

1989    October “mini-crash”

1990    Persian Gulf War

1991    Fall of the Berlin Wall

1992    Global recession

1993    Health-care reform

1994    Fed raises interest rates six times

1995    Dow tops 5,000

1996    Dow tops 6,000

1997    Hong Kong reverts to China

1998    Asian Flu outbreak

1999    Y2K scare

2000    Tech bubble bursts

2001    Terrorist attacks on US soil

2002    Corporate accounting scandals

2003    Invasion of Iraq

2004    Rise in interest rates

2005    Gulf hurricanes

2006    North Korean testing of nuclear missiles

2007    The Chinese correction

2008    Beginning of the global financial crisis

2009    U.S. unemployment rate exceeds 10 percent

2010    BP oil spill

2011    The European PIGS debt crisis

2012    Falling off the U.S. fiscal cliff

2013    Boston Marathon bombing

2014    Ebola outbreak in West Africa

2015    The Paris attacks and U.S. mass shootings

2016    Donald Trump or Hillary Clinton

2017    North Korean nuclear testing

2018    Beginning of the US–China trade war

2019    Trump’s quid pro quo impeachment

2020    COVID-19

2021    Border crisis

2022    Russia’s invasion of Ukraine

If someone who turned 65 years old at the end of 2021 had invested $10,000 in the S&P 500 at the age of 25 on January 1, 1981, he or she would have $963,427, despite all the issues with markets, the economy and in the media. During that time, there were a lot of reasons to panic and to avoid investing. Yet those who did invest, and who ignored the negativity and stayed the course, fared well.

From March 1, 2012, to March 1, 2023, the Dow moved from 13,142 to 32,652 — a gain of 148 percent- despite all the issues.

Whether it’s a bank collapse, an international crisis or some other upheaval, you can weather the storm by being prepared and working with your financial advice team on the best strategies to take. Yes, the nature of crises will always vary, but one thing will never change: savvy investors can find opportunity within the upheavals.

We will guide you in taking a disciplined approach

There have always been — and most likely will always be — reasons not to invest and reasons to panic. Yet with a disciplined approach, you can not only manage these situations but benefit from them. While the events change, the ideal reactions are the same, as are the opportunities. We recognize that, although this is simple in theory, it is difficult in practice. That’s why we are here for you.

Our team has more than 250 years of combined experience with all kinds of market and economic conditions. We will guide you through whatever comes our way. Please reach out if you have questions or concerns or if we can otherwise be of service. There are potential pitfalls in building wealth today, yet there are also tremendous opportunities. Your vision is our priority, and your financial well-being is our passion.  We look forward to connecting with you.

Holding investments for the long term does not insure a profitable outcome. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.

Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.

Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Carver Financial Services, Inc. was established in 1990 with the vision of making people’s lives better — clients, team and community. With this mission, Carver Financial Services has grown to be one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2022. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy directly at randy.carver@raymondjames.com in the office at (440) 974-0808.