Business as usual: Wall Street ignores government shutdown
The government shutdown may instil short-term volatility in the global financial market, but so far, the markets haven’t roared in reaction to the political deadlock in the world’s biggest economy.
US lawmakers failed to agree on their spending bill for the next
fiscal year, as well as raising the $16.7 trillion
debt ceiling, which sent the government into a shutdown effective 12:01am EST on Monday.
Investors haven’t been turned off, as they are more than certain
the US will reach a decision on raising the debt ceiling before the October 17 deadline for
running out of money.
During early US trade, the Dow Jones Industrial Average climbed
0.10 percent, the S&P index, which has fallen seven of the
past eight days, added 0.30 percent, and the Nasdaq Composite
index gained 0.45 percent.
“The investor climate is still positive, and the US is still
driving the global economy. Stability looks solid, we don’t
expect any big volatility from this political dispute,”
Vladimir Potapov, head of Moscow-based VTB Capital, told RT.
“We’ve seen this more than 20 times in the U.S, and remember,
they still have time to resolve the default issue,”
The US shutdown has had little effect on foreign markets.
European stock markets were mostly higher on Tuesday, despite the
shaky political news from America.
Equities could actually stand to gain following the shutdown,
according to Bloomberg, who reported the S&P 500 has on
average risen 11 percent the year after a government shutdown,
higher than the average gain. The data is based on the 12
shutdowns that have occurred since 1976.
The S&P 500 has risen 11 percent on average in the 12 months
following a government shutdown, according to data compiled by
Bloomberg on the 12 instances since 1976. The S&P is already
at a relative peak after it gained 3 percent when the Federal
Reserve decided to continue its $85 billion-per-month bond buying
"The economy we have today can be described as an economy of
sentiment, driven mostly by market expectation. All of the crisis
are hand-made today,” Igor Nikolaev, director of the
strategic analysis department at PKF, told RT.
The current investment sentiment is much more dependent on long-term economic factors, which are still very strong in the US. Investors have confirmed preference of developed markets to emerging markets.
“TV networks all over the world will talk about it. But the
people who are buying and selling dollars will not pay too much
attention,” said Jim Rogers, chairman of Singapore-based
Rogers Holdings, adding it's more of a political show than
“They’re not on the brink of default because they can print as
much money as they want. Yes, America’s the largest debtor-nation
in the entire history of the world. Nobody’s ever been this deep
in debt and it’s going higher and higher,” he said.
Some analysts are more optimistic about the shutdown, hoping it
will help speed along the decision to raise the debt ceiling.
Alec Phillips, a Goldman Sachs economist, said on Friday that a
shutdown could "ease passage of a debt-limit increase" as
Republicans will lose their influence in Congress as they are
largely blamed for pushing the shutdown
Politicians, who are fighting to gain support in the budget
battle, are telling a much more dramatic doomsday tale.
“We know it would have a profound destabilizing effect on the
entire economy — on the world economy — because America is the
bedrock of world investment,” President Obama said on Friday
in a warning to Congress, adding Congress shouldn’t ‘fool’ with
the world’s reserve currency and the foundation for capital