"Indicators Still Bullish Even With Government Shutdown" Says Elaine Garzarelli

Oct 07, 2013, 10:35 ET from Garzarelli Capital, Inc.

NEW YORK, Oct. 7, 2013 /PRNewswire/ -- Each week, Elaine Garzarelli sends out the Garzarelli Capital Client Letter late on Friday. Following is an excerpt from last week's that might be of interest:

"(Last) week the government officially shutdown nonessential services in the U.S. government. House Republicans insist that the government's new spending bill include provisions to either defund or disrupt Obamacare; while Senate Democrats insist that it does not. Obamacare is not directly tied to the funding, but it is being used as a bargaining tool. In addition, the debate involves what budget demands the Republicans will make in return for a resolution on the debt ceiling.

"There have been 12 shutdowns from 1976 to 1995, ranging from one to 28 days long. The last shutdown was in 1995 and lasted 26 days. There are an estimated 800,000 federal employees that have been furloughed. However, with continued QE from the Fed, we do not expect a big effect on stocks from the shutdown. We see, at worst, a 4.0 to 7.0 percent correction and so far, the S&P 500 is down -2.7 percent.

"Initially, stocks did not respond poorly to the shutdown. Obama warned that financial markets should take notice, he said 'I think this time is different. I think they should be concerned.' This comment from Obama and the pullback in stocks may give politicians reason to act sooner than later.

"Even though the direct impact of the government shutdown is forecasted to be modest short term, its effects can be felt if the impasse continues. It can affect consumer confidence, which could trim planned spending. The debt ceiling which comes to a head on October 17th and if not raised could cause a credit downgrade, which ultimately will create economic problems. We see zero chance of this.

"Treasury yields have declined on a flight-to-safety. The 10-year Treasury is now at 2.65, down from its recent high of about 2.96 percent – a big positive. At the same time, gasoline prices declined and the Fed's balance sheet continues to expand. Falling rates are good for housing, capital spending and the stock market.

Our Indicators

"Our proprietary stock market indicator composite declined to 68.5 percent from 79.0 percent due to the downgrade of our sentiment indicator, Bloomberg Financial Conditions indicator and the ECRI weekly index. The majority of our indicators are either neutral or bullish. We recommend an unhedged position and declines, as mentioned above, should be limited to 4.0 to 7.0 percent. We look for a 15.0 percent gain in the S&P 500 over the next six to twelve months. We believe equities, which have been in a cyclical bull market that started in March 2009, are still the best investment. Our 'Sector Analysis' fund is up 23.0 percent year-to-date."

About Elaine Garzarelli
Elaine Garzarelli, President of Garzarelli Capital, Inc., is an economist with a doctorate from Drexel University in economics and statistics. She worked for major institutional brokerage firms for over 15 years while perfecting her market and industry econometric timing models, and was ranked #1 for 11 consecutive years on Institutional Investor's "All-Star" team for Quantitative Analysis and was recently inducted into the Hall of Fame. She started her own companies in 1994, and currently runs the "Sector Analysis" fund.

The Ralph and Elaine Garzarelli scholarship is available at Drexel University for women majoring in economics.

Garzarelli Capital does not warrant or guarantee the accuracy or completeness of this report nor does Garzarelli Capital assume any liability for loss of any nature that may result from reliance by any person or institution upon any such information or opinions contained herein. Such information and opinions are subject to change without notice and are for general information only.

For further information, to receive this week's entire Garzarelli Capital Weekly Investment Letter, or to speak with Dr. Garzarelli, please contact Temin and Company at 212-588-8788 or news@temin.co

SOURCE Garzarelli Capital, Inc.