The Line: The Government Avoids a Shutdown and September Lives Up to its Economic Reputation

Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.

Since 1945, September has been the worst month for stocks. On average, the S&P falls 0.56% in September, followed by an average decline of 0.15% in February. Every other month averages a positive return, so what makes September so bad?

The funny part is that most analysts say nothing, claiming the "September Effect" is really just a statistical anomaly. Some investors rebalance their portfolios after summer vacations in part to pay for schooling, but that alone doesn’t explain why the month typically stinks for stocks.

Well, this September lived up to its reputation, as the S&P 500 lost 4.8%. It was the index’s worst performance since March 2020, and we all remember how much fun that was.

The Delta variant, rising inflation and rates, and worries about the Chinese property market all played a role in September’s poor performance. The good news is that analysts had expected a pullback last month, so you shouldn’t panic too much. Historically, stocks rise 0.8% in October, and the S&P 500 is still up 15% in 2021, so sit back and watch the Yankees make the playoffs.

Shutdown Averted

Yesterday, the House and Senate passed bills to keep the government running through December 3. A shutdown could have led to furloughs for federal workers and the suspension of certain services.

Not that anyone asked, but it was a looming government shutdown that got me into real estate. In 1995, I was working at the Bureau of Labor Statistics when talk of a shutdown heated up in the fall. Worried about losing my job, I started looking and ultimately landed at REBNY in October. Shutdowns have become more common since then, but at the time I was really concerned.

Before Congress pats themselves on the back, they have one more catastrophe to avert: raising the debt ceiling—or the total amount the government can borrow (currently $28.4 trillion)—before it’s reached on October 18. Treasury Secretary Yellen has been raising the alarm on this, warning of "irreparable harm" if it’s not raised in time.

Like government shutdowns, debt-ceiling panics have become more common these days, so most people don’t worry too much about them. Even so, things in government are pretty bad when we can’t pass budgets on time and make sure our bills are paid.

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