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What government shutdown? Wall Street shrugs off D.C. turmoil – for now. (+video)

Stocks were up across the board Tuesday, buoyed by positive news about US manufacturing and apparently unswayed by the government shutdown. But Wall Street could change its tune if the debt ceiling is not raised.

The partial shutdown of the U.S. government failed to spook markets Tuesday, with stock indexes rising around the world. Analysts say significant damage to the U.S. economy is unlikely unless the shutdown lasts more than a few days. (Oct. 1)
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Despite earlier worries, it appears Wall Street and markets around the globe have already brushed off Tuesday’s government shutdown and returned to business as usual – even though a more volatile threat looms as the US government heads toward a debt ceiling fight.

Burnished by positive news about American manufacturing, stocks were up across the board Tuesday, with the Dow climbing 0.41 percent to 15191 and the S&P 500 up 0.8 percent at closing. Nasdaq, too, finished the day up 1.23 percent, erasing its losses from the end of last week, when fears of a government shutdown made the markets stumble.

The strong market showing comes even as the Affordable Care Act begins the long-awaited launch of its signature health insurance exchanges. House Republicans are refusing to fund government operations unless the White House agrees to negotiate a rollback of the law’s provisions – something the Democrat-controlled Senate and President Obama have long said they would never do.

By now, the market isn’t surprised by Congress’s surly behavior.

“I think the bulk of the market reaction to the shutdown has basically taken place,” says Steven Shapiro, director of the Center for Risk Management at the New York Institute of Technology. “As it became more likely that the shutdown would occur, I think the market started processing that information, and that’s when you started to see a negative trend – say, mid to late last week into yesterday.”

Indeed, what markets loathe most are the vicissitudes of uncertainty and instability. Even predictable downturns can reap a profit for smart investors, experts say.

Historically, the S&P 500 Index dropped an average of 0.3 percent during shutdowns, but recovered 0.9 percent in the 10 days following it, according to analysis by Ned Davis Research.

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