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Wall Street shrugs off 'sequester': Why is it ignoring Washington this time?

The stock market, flirting with all-time highs, seems relatively unfazed by Washington's latest fiscal stalemate over the sequester. Here are six reasons for the new attitude.

By Husna HaqCorrespondent / March 1, 2013

Specialists Thomas Facchine, Peter Giacchi, and John Parisi (left to right) look at their screens on the floor of the New York Stock Exchange Thursday. The stock market closed higher Friday, despite the government's inability to prevent the 'sequester' spending cuts.

Richard Drew/AP


New York

Sweeping government spending cuts are set to go into effect by the end of Friday, a move some in the government have called calamitous – and yet financial markets appear to be unfazed by the “sequester.”

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The across-the-board cuts have inspired doom-and-gloom scenarios, with government officials warning it would result in airport delays, furloughs in the Pentagon, reduced border security, lost access to Head Start for almost 5,000 low-income children – and potentially more forest fires and chicken shortages.

Previous fiscal showdowns in Washington – like the "fiscal cliff" standoff late last year – left investors jittery and the stock market wobbling. This time, analysts say, the market is ignoring Washington’s antics.

“The market has completely shrugged it off,” says Marc Chandler, global head of currency strategy at Brown Brothers Harriman. “People have barely batted an eyelash.” 

Indeed, Wall Street indexes closed higher on Friday: The Dow Jones Industrial Average rose by 0.25 percent to close at 14089.66; Nasdaq rose 0.30 percent to close at 3169.74; and the Standard & Poor’s 500 rose by 0.23 percent to close at 1518.21.

And the stock market is at a five-year high, with the three main indexes near record territory. The Dow has recovered all the losses it incurred during the financial crisis and is now near its pre-recession peak. Following the dotcom bust of 2001, the Nasdaq is trading at an all-time high. And the S&P 500 has been rising steadily since the fiscal cliff standoff, now at its highest levels since 2008.

If the spending cuts go through as planned, the market will certainly feel the blow, but for now, it’s business as usual on Wall Street.

Why is the market continuing to improve despite the prospect of weaker growth as a result of the sequester? Analysts count a number of reasons behind the relative stability of the market, from strong corporate earnings and a rebounding housing sector, to an investment community that’s had time to adjust to the impending cuts and that continues to expect some sort of deal to mitigate the sequester’s impact.


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