Analysis: U.S. shutdown strategy - Many advisers keep clients in stocks

Mon Sep 30, 2013 7:32pm EDT
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By Lauren Young

NEW YORK (Reuters) - Should I stay or should I go?

The looming U.S. government shutdown has plenty of investors asking if it's time to exit the stock market or stay put.

Stock prices have been under pressure in recent days in anticipation that the government may shut down on Tuesday if lawmakers are unable to agree on a spending bill.

With the S&P 500 less than 3 percent from its all-time high, some advisers said the threat of a shutdown is a chance to reap some gains in a market that could be ripe for a correction anyway.

Yet most financial advisers and institutional investors interviewed by Reuters on Monday are telling clients to hang tight - for now. Only a minority are putting clients on red alert and jumping into cash or other safe-haven assets.

For most folks who manage money, government shenanigans are becoming a regular part of the environment, after similar battles in 2011 and 2012.

"There may be some short-term market moves ... but markets are getting increasingly immune to nonsense out of Washington," said Eric Stein, co-director of the Global Income Group at Eaton Vance in Boston, who manages more than $17 billion, including Eaton Vance Global Macro Absolute Return fund and Eaton Vance Strategic Income fund.

A key argument for staying put: Previous shutdowns haven't had much of an impact on portfolios. Bank of America-Merrill Lynch examined 17 government shutdowns since 1976 (all but three of which took place before 1987 under Presidents Ford, Carter and Reagan). In the month prior to a government shutdown, the market gained 0.1 percent; it dipped 0.8 percent during a shutdown, and then bounced, gaining about 1.1 percent in the month following a shutdown.   Continued...

U.S. Senator Chuck Schumer (D-NY) (L-R), Senate Majority Leader Harry Reid (D-NV), Senator Patty Murray (D-WA) and Senator Dick Durbin (D-IL) stand with a clock counting down to a government shutdown at a news conference at the U.S. Capitol in Washington, September 30, 2013. REUTERS/Jonathan Ernst