I guess we will need to watch the Dow Jones Industrial Average (DJIA) for the next couple of days. The first thing this morning, it dropped about 70 points and has pretty much stayed there for until now. In a fundamental sense, the DJIA doesn’t mean much. But in this case, it is a gauge of how nervous the bankers are. Clearly, they aren’t freaking out. Yet. But the federal government will hit the Debt Ceiling on Thursday, and I fully expect if we don’t hear some hopeful news as the day progresses, tomorrow we will see some very bad numbers. And Wednesday would be even worse.
Right now, I suspect the relative calm will last for a bit. The bankers are doing what we are all doing: waiting and watching. All of us are cautiously optimistic. After all, the Congress has always managed to raise the Debt Ceiling before. And especially with the last two Congresses, we’ve gotten used to last minute deals. But I can’t help but believe that overall the government shutdown and especially the Debt Ceiling crises are depressing market enthusiasm—not that it is a bad thing.
On Friday, the DJIA was way up as it looked like a deal was near. The initial drop this morning was probably the result of dashed hopes over the weekend. Regardless of what happens, once these crises are resolved, the market will rebound, just as we saw on Friday. These people are looking for any reason to be optimistic.
But think about what the Republicans currently want: government spending cuts. These would be bad for the economy and although they wouldn’t have the kind of effect that a Debt Ceiling breach will have, they would hurt the market. But what the Democrats want is an end to the Sequester—in other words, government spending increases. These would be good for the economy and thus the market.
The real question is why the Republican brand is as the party of business. This is nonsense. What it is really is the party of the wealthy, many of whom own businesses. So what’s good for business is generally the Democratic policy. But most business owners are not rich. They are just getting by like everyone else. And like the rest of the non-wealthy citizens, their voices are hardly heard in Washington—especially by the Republican Party. This is why it will be interesting to watch Wall Street the next couple of days. If the Republicans won’t listen to them, I’m not sure what the party is anymore.
Currently, the market is rallying a bit—down by about 30 points. Waiting and watching.
Update (14 October 2013 11:13 am)
Now the DJIA is up 50. So maybe they don’t care. But I am sure this will change if the crisis continues for two more days.
Update (14 October 2013 2:48 pm)
The DJIA finished up 65.15 points. Of course, the news in the Senate negotiations has been good throughout the day.