With $85 billion in automatic cuts taking effect between now and Sept. 30 as part of the so-called federal budget sequestration, some experts warn that economic growth will be reduced by at least half a percentage point. But although experts estimate that sequestration could cost the country about 700,000 jobs, Wall Street does not expect the cuts to substantially reduce corporate profits — or seriously threaten the recent rally in the stock markets.
“It’s minimal,” said Savita Subramanian, head of United States equity and quantitative strategy at Bank of America Merrill Lynch. Over all, the sequester could reduce earnings at the biggest companies by just over 1 percent, she said, adding, “the market wants more austerity.”
So, the market wants corporate earnings reduced further?