No great surge of optimism, nor pessimism, ricochet through the financial world as the Treasury avoided its threatened abyss at the 12th hour. The NASDAQ and the S&P500 closed with moderate gains whereas the DJIA was in the red by just .02 percent.
This action, following yesterday’s DJIA advance while the NASDAQ and the S&P500 declined, yields a pattern seen more often during bull markets than when prices are heading down. However, such closes are far from common.
We note, though, that one of these happened just one day before the bull market ended in March 2000; also that another occurred 16 days before prices hit bottom in March 2009.
As for tomorrow, the diagram shows that higher prices outnumbered declines 2:1 in the first bull market, 2.5:1 in the second expansion, and 3:1 in the current, since 2009, growth cycle.
Yesterday Standard and Poor estimated that the 16 day government shutdown would reduce 2013’s GNP growth by a full percentage point, from three to two percent. We belief this projection is a substantial overstatement.
Consider the following facts. The loss of GNP from the original growth projection of three percent is a full one percent. That one percent decline, when divided by the three percent, means a forfeiture of 33 percent.
Yet the shutdown lasted only eleven business days, of the 260 business in the calendar year. That means the federal government inactivity amounts to 4.2 percent of this year’s business days.
This multiplier seems excessive – that an idle factor 4.2 percent would result in a 33 percent GNP loss. Further, the rest of the economy, which outweighs by far the Federal contribution, was not shutdown, even if its pace was hindered by the government furlough.
DJIA -.02 percent
NASDAQ .62 percent
S&P500 .66 percent
