With all the talk of sequestration and budget cuts in Washington, one would expect a negative reaction on Wall Street, but exactly the opposite happened yesterday, February 27, 2013.
Surging share prices pushed the Dow Jones to an index close of 14,075.37, a daily gain of about 175 points and the second consecutive daily gain of more than 100 points. At its present level, the Dow Jones is only 89.08 away from its all- time highest close of 14,164.45, reached on October 9, 2007.
Most all sectors of the stock market moved higher, including the sectors that would be most negatively impacted if spending cuts take place. Health care and defense would definitely feel the crunch from government spending cuts, but these two sectors were, in fact, yesterday’s leading gainers.
MSN Money reports equally impressive index gains for the Standard and Poors 500 and NASDAQ. The S&P 500 moved up to 1,516 and the NASDQ improved to 3,162. For the S&P 500, yesterday’s close was about 49 points shy of its all- time high reached in 2007. For the NASDAQ, the upward trend is positive news, but the index still remains well below its all- time record close of 5,048.62 reached on March 10, 2000.
With the negative budget talk from Washington and worries over spending cuts, why would Wall Street move in a positive direction? Two possible reasons can explain the unusual, opposite reaction. One is the recent actions by the Federal Reserve. Chairman Ben Bernanke pledged to keep interest rates low in spite of some concern that the Fed’s policy would lead to inflation. Another reason is the positive economic news as of late. Housing sales and housing prices moved higher in January and orders for durable goods last month increased by the highest levels in more than a year.
Washington’s budget woes and talk of automatic budget cuts are worrisome to many, but as yesterday’s market illustrates, they don’t seem to be slowing down Wall Street. Twenty- nine of the thirty Dow Jones stocks increased yesterday and all 10 industries tracked by the S&P 500 showed an increase. The stock market has been highly volatile and the direction can change in an instant, but traders are obviously undeterred by the battles being fought in Washington and if trends continue, the Dow and S&P could easily eclipse their record highs in the coming days.
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