The broad indices showed plenty of strength after the federal government shutdown at midnight, owing to the inability of the House of Representatives and the Senate to agree on a budget to send to President Obama. The
Dow Jones Industrial Average
Bank stocks fared quite well, with the KBW Bank Index (I:BKX) rising 0.7% to 62.68, with all 24 index components showing gains.
Investors shrugged off the latest game of budget brinksmanship in Washington, and discounted the possibility of a default by the government in mid-October, as the market yield on 10-year Treasury bonds was up only three basis points to 2.65%. U.S. Treasury Secretary Jack Lew in a letter to Speaker of the House John Boehner (R., Ohio) last Wednesday said the "extraordinary measures" the Treasury was taking to maintain its borrowing power will "be exhausted no later than Oct. 17," unless the $16.7 trillion federal debt limit is raised.With the budget deadline having passed, hundreds of thousands of federal workers will be furloughed, although critical government services, including Social Security, air traffic control and the U.S. Post Office will continue to function. Still, the government shutdown can have quite an effect on the economic recovery. Deutsche Bank market strategist David Bianco in a note to clients on Sunday wrote that "Perhaps 0.02% of GDP is threatened every day the government is shut, likely less the shorter the closure and more the longer." That is, of course, a small daily figure, but with the U.S. economy growing at an annual rate of 2.5% according to the latest Bureau of Economic Analysis estimate, the shutdown could even affect Federal Reserve stimulus policy. The good news for investors on Tuesday was a report from the Institute for Supply Management that its Purchasing Managers Index (PMI) for September increased to 56.2% from 55.7% in August, coming in ahead of the consensus estimate of 55, among economists polled by Thomson Reuters. The ISM said "Economic activity in the manufacturing sector expanded in September for the fourth consecutive month, and the overall economy grew for the 52nd consecutive month."