Best Stocks to Own During a Government Shutdown

Blue chips BA and WBA have outperformed during shutdowns, historically

Jan 8, 2019 at 1:26 PM
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The partial U.S. government shutdown has been in effect for 18 days, as lawmakers fail to compromise on a budget. In fact, President Donald Trump is expected to address the nation at 9 p.m. ET tonight, to make a case for funding the controversial border wall. We are just days away from surpassing the longest-ever government shutdown, which happened in December 1995-January 1996. Against this backdrop, we decided to take a look at how the stock market tends to perform around shutdowns, and which stocks typically outperform when D.C. turns off the proverbial lights -- including Boeing Co (NYSE:BA) and Walgreens Boots Alliance Inc (NASDAQ:WBA).

Below you'll find S&P 500 Index (SPX) performance around government shutdowns since 1981, courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Looking at returns during all of those shutdowns, the SPX managed a gain 75% of the time, and rallied more than 3% during the last shutdown, in 2013.

One month after the shutdowns began, the S&P was up 100% of the time, with an average gain of 3.46%. That's far better than its average anytime one-month gain of 0.75%, with a 62.3% win rate. Three months later, the SPX was up a stronger-than-usual 5.82%, on average, and was higher 83.3% of the time. That's compared to an average anytime three-month gain of just 2.29%, looking at data since 1981, with a win rate of 68%.

SPX during govt shutdowns

So, if past is prologue, the stock market could recover nicely in the first quarter. However, the Trump administration has been anything but conventional, and there's no telling what a record-long government shutdown could mean for Wall Street, which is already nervous about the impact of an ongoing U.S.-China trade war and the health of the global economy.

In any event, below are the best SPX stocks to own in the month after a shutdown begins. In order to make the list, stocks had to have at least 10 returns during shutdowns -- so they had to be trading back in 1982. At the top of the list are blue-chip stocks Boeing and Walgreens.

best stocks during govt shutdown

Boeing stock has been positive a month after shutdowns begin 92% of the time, with an average gain of 9.4%. The first trading session of this shutdown -- Dec. 24 -- BA stock suffered its lowest close of 2018, ending at $294.16. The equity subsequently hit a new annual low of $292.47 on Dec. 26, but has since added about 16%. In fact, the shares are up 3.4% today to trade at $339.27 -- and are set to retake their 50-day moving average -- after Boeing said it delivered a record number of aircraft in 2018.

BA stock chart jan 8

An unwinding of pessimism in the options pits could add fuel to Boeing's fire. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.93 is in the 87th percentile of its annual range. While this means purchased calls still outnumbered puts on an absolute basis, the high percentile indicates a much healthier-than-usual appetite for long BA puts over calls in the past two weeks.

Walgreens Boots Alliance shares have also been higher 92% of the time a month after shutdowns begin, with an average gain of 8.09%. As with BA, WBA had a rough Christmas Eve, ending the holiday-shortened session at $65.26 -- its lowest close since July. Since then, though, WBA stock has rebounded about 8.5%, and yesterday retook its 200-day trendline. The equity was last seen 1.2% higher to trade at $70.80.

WBA stock chart jan 8

Should the pharmacy concern extend its recent bounce, an exodus of short sellers could be a boon to the shares. Short interest jumped 15.2% during the past two reporting periods, and now represents nearly a week's worth of pent-up buying demand, at WBA's average pace of trading.



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