U.S. stocks needn't fret about a government shutdown

Fri Sep 20, 2013 6:37pm EDT
 
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By Rodrigo Campos

NEW YORK (Reuters) - Investors may be tempted to shy away from stocks in the next week or two as the latest version of the fiscal follies plays out in Washington.

It's understandable. The prospect of a government shutdown or, worse, default on the federal debt, rekindles memories of 2011 when Washington's infighting prompted the loss of the United States' triple-A credit rating and was a primary driver behind the stock market's last full-on correction.

The sense from Wall Street analysts this time, however, is that the current drama is likely to feature more bluster than bravado and contains overblown threats.

"Looking back at the pattern that has emerged since the debt ceiling fiasco back in 2011, the Republican leadership got the message that if there is a government shutdown, most likely their party is going to get blamed," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

"They're going to be very sensitive to that public sentiment as we get closer to a midterm election year" in 2014, Jacobsen said.

"In spite of all the brinkmanship being talked about ... there will be a deal and then we will move on," said Stephen Massocca, managing director at Wedbush Equity Management in San Francisco.

This autumn's standoff comes with two separate but related deadlines.

First, failure to come up with a budget deal by the end of the month risks a federal government shutdown starting October 1. Then, by mid-October lawmakers must vote to raise the federal debt ceiling to prevent a default.   Continued...

 
Traders work on the floor of the New York Stock Exchange shortly after the opening of the market in New York September 20, 2013. REUTERS/Lucas Jackson