The government is shut down. So, what does that mean for investors and stock-pickers?
Goldman Sachs (NYSE: GS ) has estimated U.S. GDP growth to plummet as much as 0.9% for the current quarter if the shutdown persists for the next three to four weeks, while Moody's, on the other hand, has estimated a decline of 1.4% for the same period if the deadlock continues.
However, investors don't seem overly worried as this was initially expected.
However, the ongoing squabble between the politicos over the Affordable Care Act could have a major impact on the issue of the debt ceiling -- and could seriously hamper the economy if Congress fails to identify common grounds of agreement and raise the existing borrowing limits.
Government shutdown: A good time to invest?
Since 1976, the U.S. government has faced 17 shutdowns, and the S&P has grown, on average, 11% in the 12 months following the shutdown.
December 1995, was the last instance of a government shutdown, and the S&P 500 gained over 21% in the 12 months that followed the resolution of the shutdown.
If the shutdown continues to drive the sell off further, value investors could be offered interesting bargains in great companies.
Moreover, the earnings estimate of over 11,000 analysts compiled by Bloomberg, indicates a strong earnings growth of 9.1% in the fourth quarter -- the biggest growth since the quarter ended September 2011.
With over 300 companies coming up with their quarterly results in October, and expectations of earnings growth high, the shutdown presents a great opportunity to investors in gaining significantly from the subsequent price swings in the market.
Warren Buffett, chairman and CEO of Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) , believes most shares are fairly priced at the moment and that it is difficult to find a great bargain, like the ones during the lows of 2008, when stocks were trading at throw-away prices; a thought echoed by Kevin Caron, market strategist at Stifel Nicolaus & Company.
While many expected the Federal Reserve to announce rollbacks on the massive buyback program currently under way, Ben Bernanke, Chairman of the Fed, may have done the right thing in keeping the flow of funds rolling in the economy, especially considering the stalemate in Congress.
Moving ahead, while the investors may be jittery about the actions of the politicians, the actions undertaken by the Fed will certainly keep any short-term fears of economic paralysis at bay.
A Fool's conclusion
As Warren Buffett rightly said, "the whole debt ceiling fight is damn dumb and the market is not going to fall apart, because [investors] expect Washington will only act irrationally for a certain length of time."
Hence, I believe, now is a good time to invest in great companies and wait for the politicians to resolve all matters, which would generate significant value for the investors in the coming times.
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