A government shutdown in 1995 actually led to a stock-market rebound, noted Sage Financial Group of West Conshohocken in a note to clients Tuesday. "While the U.S. stock market declined about 3.7 percent from top to bottom after the shutdown, it was 10.5 percent higher from the low point in the following month," the firm said, adding investors need not make any portfolio changes but must expect "short-term bouts of downward volatility."
Jason Pride of Glenmede in Philadelphia advises clients that the government shutdown's impact "will only be psychological initially, but if permitted to persist, could become a meaningful economic drag."
"The debt limit hovers as an additional major stumbling block," Glenmede advised. "Once again, the House wants concessions on the health-care law in return for raising the debt limit, while the Senate is unwilling to give in. While a government shutdown will grab the headlines, the debt limit is a critical second deadline."
David Kotok of Cumberland Advisors, which has an office in Vineland, N.J., has been using cash in client portfolios to take advantage of any sell-offs to buy back into stocks.
"We think the budget negotiations and debt-limit issue will all be resolved in our typical, dysfunctional American political way," Kotok said. "The U.S. will then continue its low-inflation, slow-growth recovery. The bull market is not over. And the muni bond market remains cheap."
So much for market panic - at least until Oct. 17.
What then? Jim Gellert, founder of Rapid Ratings, an independent credit-rating firm, said in an interview that no politicians want their names associated with an American default.
"Investors are rightly concerned about a potential default, but they don't truly think the U.S. will actually default," Gellert added.
In the meantime, he said, hold on to your seat and be prepared for a bumpy ride.