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Back in 2011 when we had the last debt-ceiling standoff, the stock market pressured politicians with its sharp declines. This hasn’t been the case this time around, with declines being measured, perhaps because of a prevailing attitude that we’d seen this kind of brinkmanship before and sooner or later it would all get sorted out.
The more protracted the fiasco, though, the less comfortable market participants can be feeling, and with this second steep drop in a row, we are potentially seeing the start of Wall Street attempting to coerce Congress into getting on with its job and preventing a damaging default.
By early afternoon in New York, the Dow was down over 100 points, around 0.68%, at 14,835, the S&P 500 was off 0.76% and the NASDAQ 100, which had held up fairly well before this week, plunging 1.5%. Recent strong performers, such as Facebook, seem now to be in the firing line, with the social media giant tumbling over 6%.
The International Monetary Fund today reduced its estimates for growth of the world’s economy, citing slowing emerging markets as a problem. The IMF foresees growth of 2.9% this year, down from its earlier forecast of 3.1%, while it now estimates 3.6% for next year, revised down from its prior outlook for growth of 3.8% in 2014. Expectations of a quick resolution to the US government shutdown and an increase to the debt ceiling are baked into these estimates.
The IMF chief economist warned that although he thought the US defaulting on debt was low probability it would have major consequences were it to occur, saying, ‘The effects of any failure to repay the debt would be felt right away, leading to potentially major disruptions in financial markets, both in the US and abroad.’