Wall Street expects sequestration

Wall Street expects sequestration

Most market professionals do not believe the White House and Congress will strike a deal to avoid automatic spending cuts, and the stock market will pay the price as a result.

A survey of money managers from the Potomac Research Group reveals split opinion among the investing world about the future of the nation’s fiscal policy. Fifty-three percent of respondents expect sequester cuts to take effect beginning March 1, while 47 percent believe a deal will be struck in time to avoid them.

The financial industry is also divided when it comes to the impact of those cuts if they occur, as 51 percent of the 55 respondents believe the Dow Jones Industrial Average would drop at least 5 percent if the sequester occurs. Another 42 percent believe the stock market would experience little to no change if those billions of dollars’ worth of cuts take effect.

The respondents are much more optimistic about avoiding a government shutdown, due to arrive when the government’s continuing resolution expires March 27. Just 15 percent of those surveyed are anticipating a government shutdown, as the overwhelming majority believes both parties can strike a funding compromise to keep the government’s doors open.

While many investment professionals see long odds in a government shutdown, they are united on the havoc it would wreak on the stock market. Eighty-two percent of those surveyed believe a government shutdown would drop the Dow by at least five percent.

Despite those looming threats to financial stability, those surveyed overall had a rosy perspective when it came to the financial markets going into 2013. Asked to rate their optimism on U.S. markets on a scale of 1 to 10 (10 being extremely optimistic), 70 percent fell on the more optimistic side of the scale, and 13 percent were dead center at a rating of 5. However, no one surveyed said they were as optimistic as possible, while 2 percent said they did have the gloomiest view.

Source: The Hill