A possible government shutdown at week's end failed to rattle markets amid horse-trading over the Republicans' tax reform bill and an $81 billion aid package for regions badly hit by natural disasters.
Equities bumped higher heading into the week as Congress prepared to vote on the GOP tax bill. But by Dec. 19, as the House approved the tax measure, investors pulled back. The S&P 500 was down 0.24% to 2,683.60 by 3 p.m. in New York, shortly after the House passed the tax bill in a 227-203 vote.
The Senate was expected to vote on the bill Tuesday evening or Wednesday morning.
The stock market dip was mostly led by technology sector companies with foreign revenues and cash abroad that are not expected to do as well under tax reform as are domestic companies.
The need to pass a government funding bill to avoid a shutdown at the end of the week was likely to be less important to the market moves, Michael Brown, economist with Wells Fargo Securities said in an e-mail.
"In general, I do not think markets are reacting to the potential for a government shutdown given the number of times Congress debates funding issues down to the very last minute," he said.
This time around, however, there is a wrinkle. Congressional Republicans unveiled an $81 billion aid package for areas hard hit by natural disasters including the hurricanes in Florida, Texas and Puerto Rico and wildfires in California. The White House had only asked for $44 billion in disaster relief for the affected areas.
Republican representatives from Florida and Texas could link disaster funding to a continued appropriations bill, according to a Politico report.
While Senate Majority Leader Mitch McConnell issued a to-do list Monday that included funding for children's health, stabilizing health insurance markets, defense and VA programs, as well as disaster funding, media reports indicated that talks between Republicans and Democrats had broken down.
A priority on the Democratic side is protecting immigrant children who were brought to the U.S. illegally by their parents, often referred to as "Dreamers."
A McConnell spokesman referred to his Monday statement when asked about the status of talks. A representative for Minority Leader Sen. Charles Schumer did not respond to an email request for comment.
Still, market participants anticipate that even if the government shuts down, it will not last long, Morgan Stanley said in a Monday research note.
If either side decides to throw down and leave the government closed, however, the impact on GDP would begin to take its toll and the lack of federal funding may show up in the markets, said Wells Fargo's Brown.