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Why Wall Street isn’t worried about a government shutdown

Wall Street insiders aren't worried the government might hang an 'out to lunch' sign. The market improved during the 1995 government shutdowns. Of greater concern: raising the debt ceiling.

By Ron SchererStaff writer / April 7, 2011

Tourist Sarah Ramadan, of Kuwait, poses for a photo under the Statue of Liberty on April 6, in New York. As talks to avoid a government showdown continue in Washington, the White House warned that national parks around the country, as well as the Statue of Liberty, would close.

Mary Altaffer / AP

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New York

From Wall Street’s perspective, the threatened government shutdown makes for good political theater, but really doesn’t mean a lot to the world of stocks and bonds. Investment strategist Fred Dickson says he considers it “a big yawn.”

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In large part, this attitude is shaped by the belief that any door-closing in Washington will be only temporary, sort of like an “out to lunch” sign. Past government shutdowns were brief and actually helped the stock market slightly. Traders are more concerned by the looming debt ceiling and the latest earthquake in Japan.

Yes, some 800,000 federal workers will get furloughed. Some tax refund checks might not be in the mail. Some economic reports might be delayed.

But none of that appears to worry stock traders.

“Ideally, any shutdown will be brief – less than 48 hours,” says Doug Roberts, chief market strategist for Channel Capital Research in Shrewsbury, N.J. “Maybe they shut down on Friday and reopen on Monday, then each side declares victory and goes home.”

In fact, the market was mostly flat on Thursday morning – until news came of another major earthquake in Japan. Stocks immediately sank as traders waited to find out more information about the new quake, which measured 7.1. The market rallied around noon, and by 3:00 p.m., the Dow Jones Industrial Average was 12,389, down 37 points from Wednesday's close.

Past shutdowns and the market

In 1995, the last time the government ran out of money, the stock market actually rose 1 percent during the Nov. 14–19 shutdown, points out Mr. Dickson, chief investment strategist at D.A. Davidson & Co., in Lake Oswego, Ore.

Congress and President Clinton then agreed to a short funding extension, but that money ran out on Dec. 16. The two sides did not reach a new agreement until Jan. 6, 1996. Dickson observes the stock market rose 4 percent during the 30 days leading up to the second shutdown and another 1 percent during the actual shutdown.

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