I’ve been getting many calls and emails from investors who are very concerned about the stock market, given the partial shutdown of the federal government and the looming crisis if the debt ceiling isn’t lifted. The concerns are typically greatest among older investors who not only remember the bear markets of 2000-02 and 2008, but who also worry about having neither the time horizon to recover, nor the stomach to experience a repeat performance.
To begin, it’s important to acknowledge that the concerns are real and well-placed. While a short-term shutdown of the government likely will have a minor impact on the economy, as it has in the past, no one can accurately forecast the consequences of a default on our debt. As a good example of the impossibility of knowing the answer to that one, in hindsight is safe to assume that the Federal Reserve would not have allowed Lehman Brothers to fail in the way it did in 2008. That was the event that precipitated the seizing up of the capital markets. And a repeat, or worse, performance could result if we defaulted.