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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