Tuesday, October 1, 2013

What is US Government shutdown and its impact on markets so far?

By Waves Strategy Advisors, For more information visit www.wavesstrategy.com
What is US Government shutdown? In U.S. politics, a government shutdown is a situation in which the government stops providing all but "essential" services.
Typically, federal services that continue despite a shutdown include the National Weather Service and its parent agencies, medical services at federal facilities, the postal service, armed forces, air traffic management, and corrections (the penal system). A government shutdown is similar to a lockout in the private sector.
In the United States, a furlough is a temporary unpaid leave of some employees due to special needs of a company, which may be due to economic conditions at the specific employer or in the economy as a whole.
BBCUS begins government shutdown as budget deadline passes
The US government has begun a partial shutdown after the Republican-led House of Representatives refused to approve a budget for next year. More than 700,000 US government workers face unpaid leave with no guarantee of back pay once the deadlock is over. Republicans have insisted on delaying President Obama's health care reforms as a condition for passing the budget.
DJIA monthly chart with highlights of previous shutdown:
The above chart clearly indicates that a US government shutdown is not so uncommon. If you read in media or newspapers it has been highlighted as Government is on the verge of default which might not be completely correct. We do acknowledge the fact that US government debt has reached unprecedented levels and seems to be in a vicious circle but government shutdown does not indicate a disaster. From above chart we can clearly see that since 1976 there have been many times a systematic Government shutdown has taken place lasting for few days to few weeks and it has happened at different stages of stock market.  People fear this will result into sharpselloff worldwide but majority of Asian markets including India are trading positive after the announcement.
Trading based on news can result into a disaster for your trading career if not on the stock market. People are trying to link the impact of this on Indian markets let alone understanding its impact on US. The above highlighted area of 1995-1996 shutdown clearly shows market continued its 3rd wave up irrespective Government actions.
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1 comment:

  1. Next election, it is best to carefully select the most credible officials to be elected.