News Column

Would Automatic Spending Cuts Rattle Wall Street?

March 1, 2013
Wall Street

Would spending cuts rattle Wall Street? Will the start of automatic spending cuts totaling $85 billion today total the stock market?

So far, Wall Street has taken the threat of across-the-board spending cuts by Uncle Sam in stride. Instead of plunging amid concerns the cuts would lop off roughly half a percentage point from economic growth this year and result in the loss of jobs, the Dow Jones industrial average has spent the past three sessions heading into today's deadline flirting with an all-time high.

The market's ho-hum reaction to the "sequestration" issue, at least so far, continues a trend of markets reacting less violently to each government-created crisis. Recall the summer of 2011, when a partisan fight in Congress about the extension of the debt ceiling resulted in rating agency Standard & Poor's downgrading the USA's gold-plated triple-A credit rating. That spooked investors big time, causing the Dow to suffer a 635-point drop on Aug. 8 of that year.

Fast forward to the end of 2012. The uncertainty surrounding the on-again, off-again negotiations related to the "fiscal cliff" got lots of media attention. But it resulted in a five-day loss Dec. 21-28 for the Dow of 374 points, or 2.8%. Once lawmakers agreed on a deal to raise taxes, averting the full force of the fiscal cliff, the Dow soared nearly 475 points in a rally on the last session of 2012 and the first trading day of 2013.

Either Wall Street is getting desensitized to man-made fiscal crises in Washington, or stock investors are in denial. Stay tuned.

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Source: Copyright USA TODAY 2013

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