MT Insider: US Economics - Government Shuts Down and Yet, Equity Futures are Higher


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Equity futures are heading north this morning after the US government shut down. Why?

It is actually not as surprising as one would think. In general, analysts on the street were already assuming a partial shutdown (more on this later), as suggested by analysts at MT Newswires yesterday.

Market sentiment has become increasingly more bearish regarding the "dysfunction" in the government.

Moreover, government shutdowns are actually more normal than one would think.

In fact, George W. Bush was the only president in recent decades to not experience some type of government closure. Recall that the threat of shutdowns has happened before: under Former Presidents Gerald Ford (once), James Carter (five times), George H.W. Bush (once), and Bill Clinton (twice).

It is important to note that the entire government is not out of a job today. This is a partial shutdown. Most of the 3.3 million government workers are deemed "essential." It is estimated that 800,000 government employees will not be working.

Behind the scenes, a deal is likely slowly in the works. There will potentially be concessions on repealing the 2.3% excise tax on medical device makers, which would positively impact Medtronic ( MDT ), St Jude Medical ( STJ ), Waters Corp ( WAT ), and Boston Scientific ( BSX ).

Putting this into perspective, investors recognize the difference between a government shutdown and the debt limit deadline in mid-October.

While counter-intuitive, sequesters and closures in the past have lead to modest equity volatility (VIX). This shutdown would likely reduce the appetite of Congress to allow a debt limit crisis (which is what the markets really care about).

The impact on growth from this stoppage should be relatively minimal assuming that it will last a few days to a few weeks, at most. According to IHS, it is estimated the shutdown will cost $300 million per day.

DJIA 15075.0 +29.0 +0.19

IXIC 3217.0 +8.0 +0.25

SPX 1678.0 +3.75 +0.22

MDT 53.25 0.00 0.00

STJ 53.64 0.00 0.00

WAT 106.21 0.00 0.00

BSX 11.74 0.00 0.00

VIX16.60 0.00 0.00

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities
More Headlines for: BSX , MDT , STJ , WAT

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