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U.S. Government Shutdown: What It Means for Investors

Rashmi Singh
October 3, 2013

Source: Ken Hawkins.

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.

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