Stocks marked their first five-day decline of 2013 on Wednesday, partly due to worries Congress won’t be able to avoid a shutdown, or even more problematic, manage to raise the debt ceiling in time to avoid a default by the U.S. government.
Still, the underlying mood seems to be one of relative calm: Sure, the government might shut down. Sure, the U.S. might even come to the brink of default. But in the end, cooler heads will prevail and a last-minute compromise will be reached.
Time will tell, of course. But Sam Stovall, chief equity strategist at S&P Capital IQ, notes that it was just a week ago Wednesday that the consensus proved quite wrong about the Fed’s tapering program. That raises the question of whether the crowd is making the wrong bet once again. He writes:
Could this majority, who we think expects Congress to arrive at an 11th hour agreement, be wrong again? With a mid-term election year right around the corner, it may behoove one party to allow the unthinkable to occur, so long as the other party got the blame. We believe the likelihood of another shutdown grows.
That’s depressing. But at the same time, Stovall argues that while Congress could force the S&P 500 to endure a 5%-plus drop, it could end up as a “gift” to investors.
He notes that the peak-to-trough decline associated with the shutdown of the U.S. government between Dec. 16, 1995 and Jan. 6, 1996 saw the S&P 500 drop 3.7%, “only to witness a jump of 10.5% in the subsequent month.”
source: thetell
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