The market does not like uncertainty and as the House and Senate ping-ponged bills at each other yesterday, the markets sold off. But as the reality hit that there was not going to be a last-minute compromise and the sun rose in the East, people realized that a government shut-down in a free-market economy is not a financial Armageddon. So at the opening bell, the US stock market rose, as did many markets around the globe.
From the Wall Street Journal:
Stocks rose, shrugging off the first U.S. government shutdown in 17 years, helped by a strong reading on manufacturing activity.
The Dow Jones Industrial Average advanced 63 points, or 0.4%, to 15191 in recent trading. The S&P 500 tacked on 11 points, or 0.6%, to 1692, and the Nasdaq Composite Index rose 29 points, or 0.4%, to 3800.
Global stocks showed resilience after lawmakers failed to reach agreement to keep the government fully funded to start the new fiscal year as Senate Democrats and House Republicans remained at loggerheads over government spending and the launch of the Affordable Care Act.
Traders said that the markets had been anticipating the political gridlock, which has contributed to the Dow falling seven over the past eight sessions, including Monday’s 129-point slide.
“Most people are pretty sure that this is going to be a short-lived event,” said Ian Winer, director of equity trading at Wedbush Securities. “Even though there were big moves leading up to this, most people are positioned for a near-term shutdown, and it looks like the selling has let up. There’s not a lot of new buying, but guys have sold what they wanted to sell.”
There is an old Wall Street adage: “Buy on the rumor, sell on the news.” That simply means that an event that is widely anticipated is probably priced into the market by the time it actually comes to pass. That seems to be what happened in case of this much-anticipated shut-down which, it seems, was actually wanted by both sides.