There is always something that investors are concerned about. Now it’s the debt ceiling and the U.S. government’s willingness to pay its bills. This show has happened before and we have not formally defaulted on any of our debt in the past and I doubt we will this time around.
Anything is possible, but even though U.S. politicians continue to blame each other, I highly doubt the majority of Congress will allow a default to happen.
Let’s say a default does happen. Investors may get defensive, go to Treasuries (even though the U.S. defaulted) as Treasuries may fall less than a quickly declining stock market. Investors may feel some short-term pain and markets would probably be volatile. If that’s the case, ask yourself, how will the U.S. default actually impact the long-term sales of the iPhone. Or revenue from ads in your Google search results? Or a Costco corporate bond? I doubt any of those would be impacted materially over the long term.
Investors often get nervous because of very short-term negative macro news. They get defensive at the wrong time or believe markets “have” to sell off because of whatever reason they’re nervous about (remember, investors are always nervous about something).
Just remember, just because some worrisome news keeps hitting the headlines that seems scary over the short term, more often than not, your actual underlying investments in companies and bonds may not materially be impacted if you take a longer-term view. Again, short-term volatility or financial market declines may be great opportunities to add risk as short-term nervous investors get shaken out of the market. Then, when the coast is clear, the short-term investors may have to buy the financial assets they sold when they were nervous at higher prices. They can buy those higher priced assets from you when you bought when they sold.
Stay tuned for the debt ceiling outcome but long-term investors could be prepared to take advantage if the markets decline to attractive levels.
Wait, what about the bank failures that everyone was worried about a couple months ago? Oh how quickly the market forgets. “Look! A squirrel!” It will be interesting to see what mini “crisis” investors and the media will focus on next.