Market anxieties turn to debt ceiling

How Congress and President Barack Obama deal with the debt ceiling is likely to determine market volatility for the rest of the year.

Now that the expected tapering of $85 billion a month in asset purchases fizzled out at the Federal Reserve™s September policy meeting, investor attention has shifted to the brewing showdown over the budget and the debt ceiling.

Already the House has thrown down a gauntlet to the Obama Administration, passing a budget bill that keeps the government running through mid-December but guts funding for Obama™s health-care law. Without a budget by Oct. 1, when the government™s fiscal year 2014 begins, a shutdown becomes a real possibility.

The Congressional Budget Office sees U.S. debt at 100% of GDP by 2038 at current budget rates.

Adding to pressure is a Congressional Budget Office report in the past week showing that national debt is now 73% of GDP and that the federal budget œcannot be sustained indefinitely.”

œIt appears a government shutdown is ripe,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. œInvestors need to be cautious about that.”

Stocks finished the week higher despite a big Friday pullback, with the Dow Jones Industrial Average DJIA -1.19% up 0.5%, the S&P 500 Index SPX -0.72% advancing 1.3%, and the Nasdaq Composite Index COMP -0.39% ahead 1.4%. Both the Dow industrials and the S&P 500 closed at their all-time highs Wednesday after the Fed scrapped plans to taper in September. Market Watch

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