Tax Advice Santa Rosa – THE 1995-96 SHUTDOWN & ITS IMPACT

October 9th, 2013 → 8:16 pm @ // No Comments

How did the market hold up then? What can we learn from that time?

Will the market hold up as well as it did last time? That is the near-term question on the minds of some investors as the partial shutdown of the U.S. government drags on. Stocks bounced back quickly from the 3-week gridlock that occurred in 1995-96. Will that be the case in 2013?

In some ways, things weren’t that different. In late 1995, the economy had been expanding – similar to today. Stocks were on a tear: a powerful bull market had begun in 1992, and it was far from over. Between 1992 and 2000, the Dow rose about 7,800 points. In fact, it gained almost 3,000 points (about 75%) between January 1995 and March 1997.

There were actually two shutdowns in late 1995: one lasted from Nov. 14-19, the other began on Dec. 15 and lasted until Jan. 6, 1996. How did stocks respond? The Dow dropped 3.5% during the December to January shutdown, yet rose 10.1% in the month afterward. Growth also took a hit as our GDP fell to 2.7% in Q1 1996, but by Q2 1996 the economy was expanding at better than 7%.

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