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Sequester a stock market killer?

By Greg Guenthner · Bankrate.com
Monday, February 25, 2013
Posted: 10 am ET

First there was the debt ceiling. Then a "fiscal cliff" tried to ruin the party. And now, we have a sequester looming this week.

No one likes the idea of the automatic $1.2 trillion in budget cuts aimed at reducing the budget deficit that will take effect March 1 -- not even the elected officials who are in charge of coming up with a solution.

"I think the sequester was a stupid thing," New York Rep. Eliot Engel, D-N.Y., told ABC News. "I voted against it when it first time came up. Congress keeps kicking the can down the road. It's really a ridiculous thing to do."

Whether the sequester deadline passes with all of the across-the-board cuts intact or not, there is likely to be some reaction from the stock market. But it might not be what you expect.

Here's why ...

First, there's the full-court media press. Ever since the brief debt-ceiling crisis began, the media has concocted endless doomsday scenarios surrounding the federal government's budget decisions. The December fiscal cliff decision was picked up by every financial media outlet and subsequently beaten into the ground.

The markets did retreat slightly in the weeks leading up to the New Year's decision. But even when Congress announced that a virtual nondecision was made, markets shot higher. That's because the bad news was already priced into the market. Every negative scenario was known and thoroughly analyzed. Once the uncertainty of the actual deadline had passed, even a can-kicking decision was enough to lift the markets considerably higher.

Much like the fiscal cliff talks, you should not assume the new sequestration crisis will completely hold the markets hostage.

During times of uncertainty, things usually aren't as bad as they seem -- the same way the outlook is never as perfect as advertised when the economy is roaring. With investors already fearing the worst, any decision at all -- even something that might be perceived as negative -- could help ease the uncertainty and move the market higher.

The 2013 rally has already survived a fiscal cliff and higher payroll taxes. Investors have proven they're willing to climb the wall of worry (for now) in the face of some bleak data. The Chicago Tribune has compiled some telling survey numbers to illustrate just how pessimistic consumers have become.

"About 46 percent said they will spend less overall, with 34 percent reducing dining out and 25 percent cutting back on 'little luxuries' such as trips to the coffee shop, manicures and high-end cosmetics," the Tribune reported over the weekend. "Among those making less than $50,000 a year, 23 percent said they would spend less on groceries."

If the automatic cuts do go into effect as is, we could see even more cautious consumers headed forward…

So will we see a new and improved, last-minute deficit-reduction package before the March 1 budget cuts go into effect?

It's difficult to say.

But as this new deadline approaches, don't assume it will send stocks reeling. Sometimes, all the market needs is a little certainty.

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15 Comments
dezznutz1001
February 27, 2013 at 9:54 am

Brando: That is the worst Idea I have ever heard...give the President MORE Exectuive Power? DOes your dumb as NOT understand how the Balance of Power amongst our legislaitve, judicial and Executive branches works?

Jay
February 27, 2013 at 9:53 am

It is so silly how these elected officals continually make their jobs personal and ignore the real reason they are there. It should be about the American public and our country and not stupid politcal lines. They get paid much greater salaries than the rest of the country to simply do nothing but argue. For those that voted for Obama, what did you expect? You really thought he would become a leader overnight huh?

MIKE
February 27, 2013 at 9:03 am

What we need is a President that can lead vs start hate and discontent between the two parties!! All Obama does is try and blame someone else for his failures.......

Anne
February 27, 2013 at 8:57 am

How is this sequester problem only caused by the HOUSE-- it seems that the SENATE and the PRESIDENT are not looking out for the people!

And WHY are we only hearing about the dire consequences for the citizens, WHY is the PRESS NOT telling us how the House Representatives, the Senate, and the President are going to cut their budgets, lay off staff, curtail their personal budgets, and take furlough days, etc.

Did we not elect ALL OF THEM to run our government? Are they leaders OR are they ALL "spoiled juveniles fighting over the toys they have charged to the budget that is funded by the citizens of the United States".

Please PRESS (no matter YOUR affiliation) tell us how we are being manipulated and HOW we are being made irrelevant in our own future!

John Boston
February 27, 2013 at 8:38 am

The economy is artificially growing by the endless running of the Fed printing press. When that stops or when our creditors begin to doubt our ability to repay - that will be a bad day for the stock market. The government actually spending a little less money is a good thing from the perspective of our creditors. So with sequestration or whatever means to cut spending - it should help the stock market. The big question is when/how the fed turns off the spigot.

mike
February 27, 2013 at 7:04 am

The trouble is that we can't remember all the stupid and bad things our elected reps do at voting time, so we see the same problems year in and year out. we see the reverse of the adage,one aww.......wipes out all the attaboys. now it's one good deed wipes out all the aww.......!

Edward Mann
February 27, 2013 at 6:42 am

I say term limits on all includeing the senate just like the president if they can't do their job them good by

Christopher Markunas
February 27, 2013 at 3:12 am

Fire congress? Everybody? It's just obstructionist Repubs who are bring this to us. Remember that in 2014.

brando
February 27, 2013 at 12:44 am

Could you imagine hiring people who are actually qualified for their positons and who would be responsible for their decisions like a real job. Talk about true capitalism. Would definitely be better than what we have right now, which is no responsibility whatsoever.

brando
February 27, 2013 at 12:40 am

Well: If Congress cannot come up with a solution to the sequester than they should all be fired and congress should be disolved and an election held within 90 days. give full executive powers tot he president and the Senate to run the government and finance the country until the new congress is in place. Disallow anyone currently in congress from running in the new election. Perhaps then we will get a government that will listen to the people and ultimately do what is in the best interest of the country. Perhaps what we really need is to elect the president and hire a Congress where the are employees of the country like a major company. If they cannot do their job , then they get their eveluation and are fired and replaced with someone who can.