SOURCE: Russell Investments

Russell Investments

October 10, 2013 09:18 ET

Shutdowns, Ceilings and Markets; Russell 1000® & 2000® Indexes Reflect U.S. Market Reaction to Beltway Uncertainty

SEATTLE, WA--(Marketwired - Oct 10, 2013) - U.S. stocks, as reflected by the U.S. large-cap Russell 1000® Index and the U.S. small-cap Russell 2000® Index, have reacted differently to past government shutdowns and debt ceiling debates. Market reaction to past federal government shutdowns has been mixed historically but generally muted, while debt ceiling debates have had a bigger impact on market performance.

  • The previous U.S. government shutdown, lasting from November 14, 1995 through January 5, 1996*, the Russell 1000® (3.7%) and Russell 2000® Indexes (3.1%) both rose more than 3%. 

  • The U.S. debt ceiling debate of 2011, beginning with U.S Treasury Secretary Tim Geithner suspending the debt ceiling resolution on May 16 and ending with President Obama signing the Budget Control Act on August 2, saw a marked decline for U.S. stocks, with small-caps as reflected by the Russell 2000® Index declining more sharply than large-caps as reflected by the Russell 1000® Index.

  • The current Beltway debate, which combines the U.S. government shutdown which began on October 1st and the debate around the October 17th U.S. debt ceiling deadline, has seen U.S. stocks decline, led by small-cap stocks as reflected by the Russell 2000® Index.

However, historically, U.S. equity market recoveries have generally followed the resolution of the crises in Washington.

"History shows that U.S. government uncertainty has negatively impacted the U.S. equity market, with debt ceiling issues having a greater negative impact on the market than government shutdowns," said David Koenig, investment strategist for Russell Indexes. "The current crisis in Washington began with a government shutdown and is expanding into a debt ceiling debate, and U.S. market declines have accelerated as we move into October. Yet history has also shown that resolution of government crisis can bring improvement in economic outlook and subsequent positive performance for U.S. stocks. And although past performance is no guarantee of future performance, the ability of the Russell family of U.S. indexes to accurately measure the market makes it a valuable tool for investors."

                     
Russell Index   Nov. 14, 1995 - January 5, 1996
(US Govt. Shutdown)
  Jan. 5, 1996 -
July 6, 1996
  May 16, 2011 -
Aug 2, 2011 (US Debt Ceiling Debate)
  Aug 2, 2011 -
Feb 2, 2012
  October 1, 2013 - October 8, 2013 (US Govt. Shutdown & Debt Ceiling Debate)
Russell 2000® Index   3.1%   9.9%   -7.0%   3.3%   -2.5%
Russell 1000® Index   3.7%   7.7%   -6.1%   3.9%   -1.5%
                     

Source: Russell Investments. Returns are denominated in US dollars.

*The U.S. government shutdown of 1995-1996 combined two shutdowns; November 14 through November 19, 1995 and December 16 through January 6, 1996 for a total of 21 days.

Please note: Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Russell's publication of the Indexes or Index constituents in no way suggests or implies a representation or opinion by Russell as to the attractiveness of investing in a particular security. Inclusion of a security in an Index is not a promotion, sponsorship or endorsement of a security by Russell and Russell makes no representation, warranty or guarantee with respect to the performance of any security included in a Russell Index.

Opinions expressed by Mr. Koenig reflect market performance and observations as of October 8, 2013 and are subject to change at any time based on market or other conditions without notice. Past performance does not guarantee future performance

This material is not an offer, solicitation or recommendation to purchase any security.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity.

Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.