The Stock Market Isn't Troubled by the Sequester Cuts

Lots of factors affect the Dow Jones Industrial Average. But at this point, the sequester budget cuts aren’t one of them—at least not negatively.
 
Remember all the hand wringing from the White House, and especially President Obama, last February, as we approached the March 1 sequester deadline?
 
According to the president, the self-imposed budget cuts amounting to about $85 billion for the rest of this fiscal year, and about $1.2 trillion over 10 years, would be devastating to the economy—perhaps pushing us back into a recession.
 
We’re now two months into it. The air traffic control hassle prompted Congress to act—some might say “cave”—passing legislation to ensure the Federal Aviation Administration had the freedom to shuffle money around. And we’re learning that there will be cutbacks in various programs and services across the country, which will certainly cause some individual pain.
 
But as for the stock market? It’s up nearly 900 points since March 1 ($14,089 to $14,974 on May 3). Apparently, investors don’t see the cuts hurting the economy—and perhaps actually helping it.

 
Of course, so many factors affect the stock market that it would be difficult to claim that the 900-point rise was because of the sequester cuts. In fact, the market started its latest climb in mid-November, with significant drops in late December as Congress and the president struggled over the Fiscal Cliff, and again on February 25, probably out of concern that the cuts wouldn’t take effect.
 
And the market may turn south come summer—as it often does—as fears of a European Union downturn and other factors begin to weigh on investors.
 
But the market’s current rise is just one more rebuke to the administration’s guiding economic policies: that government spending is what spurs economic growth.
 
That’s why, as we creep up on the debt-limit ceiling later in May, fiscal conservatives may want to consider another round of sequester cuts, as Institute for Policy Innovation President Tom Giovanetti has proposed.
 
The sequester may be a blunt instrument for cutting government spending. But as long as the Big Spender is in the White House, it may be the best tool we have.