For the first time, Congress has failed to kick the can down the road before a fiscal deadline hit. We are now fully sequestered. What does that mean? On one hand, we can say that it does not mean much if you look at the stock market. Most of us would have thought that the stock market would take a hit as the deadline expired. Yet, stocks were up solidly this week and for the month of February. Are the markets thinking that Congress will take action after March 1st, but before the cuts really have a chance to hurt the economy? Or are the markets perhaps thinking that the cuts will not affect the economy that much? You could make a case for either argument at this time.
On the other hand -- if we look closer stocks were not fazed by the cuts -- but oil prices and interest rates did fall this week. Both rates and oil prices trended higher earlier this year as stocks rallied and the fallback came despite positive economic news released in the past few days. This positive news included continued upbeat news from the real estate sector. Usually when the stock market is strong, oil prices and interest rates are rising. If this trend holds, lower rates and oil prices in the face of positive economic news could actually give the economy a boost to offset the dampening effect government cuts might have on the economy. To make matters more complex, we have the all-important employment reports released this week. Our first week under sequestration could be an interesting one, indeed.