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Stock Market Unfazed By Sequestration Cuts

Wall Street

Photo: Mathew Knott (Flickr)

Despite high unemployment and a lack of fiscal certainty from the U.S. Government, financial markets are doing well.

While local effects of the federal sequestration are yet to be seen, investors do not seem to be frightened by the economic impacts. The Dow hit a record high Tuesday, even though experts say investors have given up on the possibility that Congress and President Obama can compromise.

On Tuesday, the Dow Jones Industrial Average reached a record high of more than 14,250 points, indicating that investors are not very concerned the sequestration will negatively affect the US economy.

Sreenivas Kamma, chair of the Finance Department in the IU Kelley School of Business, says investors had little hopes of a last-minute compromise, but are well-prepared for the sequestration cuts.

“The markets are forward looking, and they surly saw this game of chicken coming down to the end,” he says. “I don’t think you would expect much of a reaction given the preponderance of expectation was that this would happen.”

Kamma says though the markets are doing well, the U.S. unemployment rate remains high, and will likely remain that way until Congress can begin working together. While many government employees and contractors will see an immediate impact of the sequestration, lower-income Americans who rely on government assistance will be spared the spending cuts.

IU School of Public and Environmental Affairs Professor Leslie Lenkowsky says while some non-profits could see a decrease in federal funding, many are more worried changes to the nation’s charitable tax deduction structure could hurt donations.

“It will be felt particularly by organizations that depend a lot of charitable giving, so the non-profit sector is very concerned.”

In southern Indiana, defense contractors say they are taking a wait-and-see attitude to the sequestration, but hope for a solution sooner rather than later.

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