Investor Complacency Regarding The Government Shutdown

by Sabrina I. Pacifici on October 17, 2013

S&P Capital IQ (no fee req’d) – Investor Complacency Regarding The Government Shutdown And Related Politicking Is Justified, For Now

“For the past week, financial market pundits have repeatedly asked the question, why are investors so “complacent” about the potential risks associated with a temporary shutdown of the U.S. federal government? The answer to this question is multi-faceted, in our view. Broadly speaking, Global Markets Intelligence (GMI) Research sees two risks associated with the government shutdown. The first risk is that prolonged partisan bickering in Washington D.C. could have a negative psychological effect on consumer confidence, personal consumption, and, ultimately, business confidence that leads to a postponement of hiring by prospective employers. The second risk, also arising from an extended stalemate over budgetary issues, is that the current political paralysis leads to a sovereign credit downgrade by one or more of the credit rating agencies. Since the current marketplace consensus anticipates a fairly quick resolution to the budget impasse in Congress (7-10 days), most investors don’t see either of the aforementioned scenarios as high probability events at the moment.”

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