On Wall Street, stock prices rose on Tuesday, fueled by investors’ hope that the government shutdown will not last long, and that a budget agreement and an increase in the government’s borrowing limit will soon be reached in Washington.
The Dow Jones gained 62 points, or 0.41 percent, to 15,191 points, while the S&P 500 rose 0.80 percent to 1,695 points, and the Nasdaq index increased by 1.23 percent to 3,817 points.
Republicans and Democrats failed to reach a budget agreement by midnight on Monday for the fiscal year starting October 1, as they are at odds over funding for the healthcare reform insisted upon by President Barack Obama.
As a result, many government services have been suspended since yesterday, and about one million employees are at home on unpaid leave.
However, the first government shutdown in nearly two decades did not cause panic in the market, as investors believe it will not last long.
Additionally, in the previous government shutdown in 1995, the S&P 500 index slightly increased. Investors hope for a similar scenario to unfold as soon as Republicans and Democrats agree on the budget, thus considering any drop in stock prices a good buying opportunity.
- Investors seem to think this is not a major problem. For me, however, the most important fact is that one million people will not receive paychecks and are not producing anything, says Eric Lascelles, an economist at RBC Global Asset Management, who estimates that each week of the shutdown will reduce U.S. Gross Domestic Product (GDP) in the fourth quarter by 0.1 percentage points.
