Just when I thought the stock market was starting to get over its stimulus habit, we see evidence that investors are still very much in its thrall, sensitive to the threat of the tap being tightened sooner rather than later.
The leading US stock index benchmarks were languishing near the lows of the day by early afternoon in New York, depressed by anxiety that a budget deal agreed by lawmakers in Washington might precipitate the introduction of a taper by the Fed.
The Dow was down 0.51% or 80 points at 15,892, while the S&P 500 lost 0.75% to drop down to 1789.2. The 1800 level was successfully defended by the bulls yesterday, but it has been well breached today, with the budget deal yet another obstacle cleared in the path towards a December taper.
The Fed statement from the October meeting acknowledged that ‘fiscal policy is restraining economic growth’ but the accord reached in principle in Congress goes someway to blowing away the gloomy clouds of another potential government shutdown.
Interestingly, the growing speculation that the Fed could implement a reduction in stimulus as soon as next week has not boosted the US dollar much. The dollar lost ground against the yen and the euro, although it strengthened substantially versus the Australian dollar and against the pound.