13
NOVEMBER 2013
ACT
BUSINESS NEWS
AUTHOR:
CHRIS SLEIGHT
is one of
the world’s most internationally
renowned construction
business writers, with
specialist expertise in financial
markets and stock market
analysis. He is editor of KHL’s
market-leading
International
Construction
and is a regular
contributor to
ACT’
s
sister publication,
International Cranes
and Specialized
Transport
.
The government
shutdown didn’t
do much to hurt
stock market
confidence, but it
will be a different
story if a debt
default follows.
Chris Sleight
reports
T
he government
shut-down in
early October
passed without much of
a reaction from the stock
markets. The Dow and other
benchmarks like the S&P
500 and NASDAQ suffered a
dip, but by the middle of the
month, as
ACT
was going to
press, they were back up at
similar levels to those seen
throughout the summer.
This was a little surprising
given the dire warnings of
the impact on the economy
from the shutdown - many
economists think it will put a
small but measurable dent in
fourth quarter GDP.
The impact on stock
markets was an initial drop
of a couple of percentage
points for a week or two.
By the third week of the
shutdown (beyond the scope
of our graph), the Dow was
back above 15,000 points and
it pretty much looked like
business as normal.
There were two factors at
play here. First was that the
markets had already priced
the shut-down into their
calculations –if it had been
avoided, there might have
been an up-tick.
Second, the impact is not
expected to be too serious.
If there is continued failure
to sort out America’s debt
problems, there may be
long-term deterioration in
the markets. However, with
a budget agreement being
negotiated before serious
damage was done to the
economy, there was not a
huge downturn in share
prices.
As far as the heavy
equipment sector was
concerned, again there was
not much impact. The sharp
leap in the
ACT
-HEI line
on this month’s graph is due
to the rolling-up of CNH
and Fiat Industrial into a
new corporate entity, CNH
Industrial. This combines the
construction and agricultural
equipment made by CNH
with on-highway trucks and
power train components
from Fiat Industrial to form a
broader capital goods group.
ACT Heavy Equipment Index (HEI)
DOW
NASDAQ
S&P 500
25%
20%
15%
10%
5%
0%
-5%
-10%
% change
52 weeks to October 2013
The new entity has
about twice the market
capitalization as CNH, hence
the jump in the graph.
Outlook
The government shut-down
may not have rattled the
markets, but the threat of a
default would be something
else. A default by the U.S.
would be catastrophic for
global financial markets, as it
would undermine confidence
in the world’s most widely
used financial instruments.
This is what forced a the
last-minute agreement that
saw government open up
again.
However, there will still be
consequences for America.
Another credit downgrade is
a real possibility as politicians
once again demonstrate that
partisan posturing is more
important to them than
running the country.
And the latest agreement
was just a postponement.
The underlying issues with
America’s debt have not been
resolved.
■
ACT’
s Heavy Equipment Index
(HEI) tracks the performance
of eight of America’s most
significant, publicly-traded
construction equipment
manufacturers – Astec
Industries, Caterpillar, CNH,
Deere & Company, Joy Global,
Manitowoc and Terex.
What shutdown?
