The government closed for business on Tuesday morning, but for Wall Street it was business as usual with stocks rising in morning trading, indicating either that investors are cautiously optimistic that Congress will compromise on a budget deal or that the investors have simply dealt with the shock of the shutdown.
Congress failed to reach a compromise at the eleventh hour before its midnight deadline on Monday, as Democrats and Republicans remained bitterly divided over whether to defund the Affordable Care Act as part of a bill that would keep the government funded. Shortly after the markets opened the Dow Jones Industrial Average rose 0.1 percent to 15,149, the S&P 500 increased by 0.4 percent to 1,687, and the Nasdaq Composite Index climbed 0.4 percent to 3,785, according to the Wall Street Journal. Treasury 10-year note yields rose 1.3 basis points to 2.62 percent, according to Bloomberg, which could indicate that investors are making a safe bet in case the shutdown lasts for more than a few days.
"The dollar will be weakened by the shutdown but will probably snap back sharply once it ends, as long as that doesn't take more than a couple of weeks," said Kit Juckes, global strategist at Societe Generale SA in London, according to Bloomberg.
The markets also were cheered by a report that showed manufacturing activity accelerated in September across the country. The Institute for Supply Management's index of purchasing managers, the people who buy goods for businesses to make their products, rose to 56.2 percent from 55.7 percent in August. A reading above 50 percent is considered a sign of expansion and September's number was the highest in nearly 30 months.
Fears about a government shutdown had a chilling effect that caused stocks to drop on Monday, so Tuesday trading was a modest recovery.
Lobbying groups and major donors are expected to lay heavy pressure on politicians, which will likely lead to a deal on the budget within days, Politico predicts. The last shutdown of the government lasted from Dec. 13, 1995, to Jan. 10, 1996.
Shutting down the government and furloughing government workers is bad enough, but there is a greater threat to the world economy if Congress cannot reach agreement to raise the U.S. Treasury's $16.7 trillion federal debt limit. The U.S. Treasury is scheduled to ask investors for $120 billion in loans on Oct. 17, and if it appears that the U.S. cannot pay its bills on time then those investors could demand higher interest rates, which could result in more expensive mortgages, auto loans and credit card bills, according to the Washington Post.