The Ceiling Is Falling, Wall Street Scoffs at Chicken Little

NEW YORK (TheStreet) -- Senate Majority Leader Harry Reid was correct in saying that the eyes of the world were on Washington this week, but he failed to mention that the men and women across the globe who move markets called their bluff.

From the Oct. 1 government shutdown until the market close on Wednesday the S&P 500 rose 2.4%, despite repeated collapse in negotiations to raise the nation's borrowing limit and President Obama's warning that Wall Street should be worried about Congress' inaction.

"This was a pretty mild reaction this time around," said Russ Koesterich, chief investment strategist at BlackRock (BLK) in a phone interview. "We didn't really see that much panic; it didn't really feel like that a couple days ago, but compared to what happened in 2011 this was really mild."

The Chicago Board of Exchange Volatility Index, which gauges market expectations for 30-day volatility in S&P 500 index options, hit a high of 21.34, whereas the so-called fear index in July 2011 peaked at 25.94 on the final trading day before House Republicans agreed to raise the debt limit.

The S&P 500's worst performance during the 2011 debt ceiling crisis registered a 2% loss, whereas this year's worst day was a 1.2% drip that was offset two days later by the second biggest gain of 2013 -- a pop of 2.2%.

Tea party Republicans' steadfast opposition in 2011 to raise the nation's borrowing limit and force a default surprised many people on Wall Street and Main Street as the issue had not triggered a protracted debate since at least the 1970s. In other words, it was an unfamiliar experience for many, if not most, market participants. Compounding worries was deep uncertainty about the fate of the eurozone, which was reeling from the European sovereign-debt crisis and its subsequent recession.

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