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By Jason Stipp and Jeremy Glaser | 10-17-2013 12:00 PM

D.C. and the Long-Term Investor

Washington's policy debates and debacles could create real short- and long-term risks for equities, but stock investors shouldn't wave the white flag, says Morningstar's Jeremy Glaser.

Jason Stipp: I'm Jason Stipp for Morningstar.

Congress reached a deal late Wednesday to reopen the government and avert the debt ceiling crisis, but only for a few months. So what does this mean for investors?

Joining us with his insights is Morningstar markets editor Jeremy Glaser.

Jeremy, thanks for being here.

Jeremy Glaser: You're welcome, Jason.

Stipp: Let's talk first about the contours of this deal. There wasn't really a lot to it, even though it was a big deal that got done yesterday.

Glaser: There really wasn't. They passed a continuing resolution to fund the government through Jan. 15. The debt ceiling got raised into early February. ... They also set up a budget conference to try to reconcile the budgets that the House and the Senate passed. But there really wasn't a whole lot of other policy in there, and it really just kicks the can down the road into January.

Stipp: We know that the government was shut down going into its third week, so it's going to reopen, but probably some real economic damage was done from that. The debt ceiling, however, we didn't run up against it. We didn't have that crisis of unknowns that could have happened. So can we say with the debt ceiling, at least, no harm no foul, because they were able to get this bill passed?

Glaser: I think there was some damage that happened from both the shutdown and the debt ceiling. It's probably hard to disentangle one from the other in terms of confidence and loss of investment through that period, as businesses maybe were on the sidelines, waiting to see what would happen. But as Bob Johnson has pointed out, some of the spending [lost during] the government [shutdown] just isn't going to come back. We're going to see lower growth.

We're already seeing third-quarter earnings coming in, if not very weak, [at least] not showing great growth. Fourth-quarter earnings estimates probably look a little bit too high right now. I think we're going to see a lot of management teams bring guidance back in. We are already seeing that a little bit.

So I think there was a real economic impact. We certainly avoided the worst of it, or even that middle-worst scenario, but we didn't escape from this completely unscathed.

Stipp: We also saw part of this deal is going to involve a budget conference, where both sides are meant to come together so that they can reach a longer-term bargain about some of the issues that we have in the government with our spending and with our debt. Do you expect that we'll see anything meaningful come out of that?

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