Markets Shrug at Shutdown Even as Debt Battle Looms
Comment of the Day

October 07 2013

Commentary by David Fuller

Markets Shrug at Shutdown Even as Debt Battle Looms

Here is the opening from The Wall Street Journal's latest report today (will require subscription registration to see full article, PDF version in Subscriber's Area
WASHINGTON-Despite a week of budget wrangling that showed scant sign of abating, Wall Street investors shrugged off the federal government shutdown, presuming that lawmakers will find a solution before the U.S. loses its borrowing ability.

The Dow Jones Industrial Average rose 76.10 points on Friday to 15072.58, snapping a two-day losing streak. The 30-stock average declined just 1.2% during the week, despite the shutdown.

Many investors say stocks remain buoyant because they expect the Federal Reserve to continue its efforts to support the economy and because few expect the current clash to continue long enough to do lasting damage.

Some corners of the bond markets show signs of concern over the next stage-a possible fight around mid-October over whether Congress will give permission for the U.S. to issue more debt. But many standard measures of market anxiety, such as the price of gold and the yields on long-term government bonds, aren't yet flashing.

The shutdown "doesn't seem to be fazing the markets all that much," said Brian Jacobsen, chief portfolio strategist for Wells Fargo Funds Management LLC, which manages $226 billion. "The reason is, we've seen this coming from a mile away."

Friday brought an increasingly bitter series of volleys between the protagonists and ensured that the federal budget impasse would drag through the weekend. That makes next week a big test of whether the market's calm holds up.

David Fuller's view It is hard to see what either party would gain by dragging this impasse beyond 17th October, by which time the debt ceiling has to be raised. There is no economic benefit to the partial closure of government, although some of the temporary damage will be recovered shortly after this standoff ends. The only assistance for investors is that it is reducing the stock market's recent overbought condition.

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