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CPBJ Extra Blog

Banks, financial groups weigh in on government shutdown

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While the stock market dips from the federal government shutdown, investment advisers are preaching avoidance of quick reactions to extensive media coverage.

"Viscerally, it's very upsetting," said Bradley R. Newman, a certified financial planner at Roof Advisory Group Inc. in Harrisburg. "But the fundamentals haven't changed dramatically. The real key is avoiding a knee-jerk reaction. It's critical to take a step back and take a look at how this impacts me — if at all."

The Dow Jones industrial average dropped more than 2 percent between the morning of Sept. 26 and the market close Wednesday — the second day of the federal government's self-imposed shutdown — losing more than 300 points in the process. By Thursday, the Dow Jones dipped under 15,000 for the first time in a month.

Across the country, government-dependent companies and ones that are affected farther down the business food chain announced the danger of layoffs and furloughs in the coming weeks, obviously dampening Wall Street's mood.

United Technologies Corp. of Hartford, Conn., said Wednesday it would furlough about 5,000 workers if the shutdown goes into November. The company makes high-technology products and services to the building and aerospace industry. It produces the Black Hawk helicopter for the U.S. armed forces. About 2,000 of those furloughs would happen by Monday, the company said in a news release.

It's a scary proposition for investors as lawmakers continue to quibble about buzzwords such as "Obamacare" and "debt ceiling" without an obvious end in sight.

But it's one investment advisers say isn't without precedent. Bill Stone, senior vice president and chief investment strategist at PNC Wealth Management, said there have been 17 federal government shutdowns since the current budget process started in 1970 and that the markets have been "rather unflappable" during those times.

"We believe the government shutdown is likely to be for a brief period and, although we expect short-term volatility, we do not expect long-term market or economic damage," he said.

Newman said his group hasn't gotten any calls from worried clients since the shutdown occurred.

"This is clearly different from 2008-2009," he said. "That was a snowball rolling down a hill that was quickly growing out of control. This is an event-specific issue."

The real worry, Stone and Newman agreed, would be the projected debt ceiling deadline of Oct. 17.

"A government shutdown may lead to a more contentious fight on the debt limit, which could cause some volatility as the projected Oct. 17 debt limit date approaches," Stone said.

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