On Tuesday, markets were staring at a global economic debacle because of the US budget and debt ceiling showdown.
By Thursday it was a new record for the S&P 500, and another on Friday. It took Wall Street only a few hours to get past the political brinkmanship in Washington that had stirred worries of a US debt default and havoc in the global financial system.
After the government went through 16 days of partial shutdown, and on the eve of the day the US Department of Treasury said it would run out of cash to pay the country’s bills, politicians late on Wednesday finally struck a deal to fund the government and raise the borrowing ceiling.
Investors were quick to buy the good news and continued to buy through Friday, sending the S&P to another record, with the help of a huge rise in Google shares.
However, some disappointments in blue-chip third quarter earnings reports kept a damper on the more narrow Dow Jones Industrial Average.
For the week, the Dow added 1.1 percent to 15,399.65.
The S&P put on 2.4 percent, setting the closing record on Friday of 1,744.50 and an intraday high of 1,745.31.
The NASDAQ, which had fallen the most during the political crisis, surged 4.3 percent, reaching its highest since September 2000.
The return of the bulls seemed to exculpate the Republican politicians that held the government and the US credit rating hostage for goals never achieved.
Wall Street figures berated Washington through the crisis for sending shivers into the markets, but forgot quickly.
“Talk about rewarding bad behavior,” BMO Capital Markets chief economist Douglas Porter said.
“Perhaps the most remarkable aspect to the whole sorry spectacle surrounding the debt ceiling debacle is how well behaved markets were, seemingly confident that the adults would ultimately save the day,” he said.
There were varied opinions over the impact. Most economists said the shutdown, which took an estimated US$25 billion out of the economy, would trim about 0.5 percentage points from fourth-quarter growth, leaving it at a sluggish annual pace of about 2 percent.
Some expect a bounceback in the first quarter of next year, but others said the same issues and the same political standoff over the budget could return in January, when the interim fiscal 2014 funding runs out again.
“Although the US dodged a bullet this week, this month’s events dealt a blow to fourth-quarter GDP,” IHS Global Insight economists said in a client note.
“But with the next fiscal deadline only three months away, yields on 3 and 6-month Treasury bills remain somewhat elevated compared to September levels,” they wrote.
“If policymakers in Washington decide to reprise this month’s performance in January, the US runs the risk of a credit downgrade,” they said.
Such a prospect though would likely see the US Federal Reserve continuing its huge bond-buying stimulus to shore up economic growth — sustaining the easy-money flow that Wall Street likes.
Attention will focus on third-quarter results and the release of delayed data next week, including last month’s jobs report.
So far company results have been a mixed bag, with notable disappointments from Goldman Sachs and United Health, among others, the reason the Dow is lagging.
On the other hand, Google’s stellar report drove Friday’s market surge, with the stock gaining 13.8 percent to soar past the US$1,000 mark, pulling Facebook and Amazon up in its wake.
Analysts expect next week’s data releases to be less than indicative of where the economy lies, given the turmoil of the past weeks that they will not cover.
Last month’s employment report will be released on Tuesday, with expectations that the jobless rate will remain at 7.3 percent on a modest number of jobs created.
There will also be data on home sales and durable goods orders.