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Congress Acts – Finally, Markets See Clear Skies

Market Digest – Week Ending 10/18

There was nothing inspiring about the deferment the debt ceiling, but capital markets staged a relief rally anyway. Early Thursday, a bill was passed which pushes the debt ceiling out to early 2104 and reopens the parts of the government that were shutdown. Stocks and bonds rose as the worst case scenario was avoided.

Weekly Returns:

S&P 500: 1,745 (+2.4%)
FTSE All-World ex-US: (+2.3%)
US 10 Year Treasury Yield: 2.59% (-.09%)
Gold: $1,316 (+0.5%)
USD/EUR: $1.369 (+1.0%)

Major Events:   

  • Monday – Senate leaders said they were close to an agreement to reopen the federal government and avoid a debt default.
  • Tuesday – Fitch Ratings Service put the U.S. credit rating on negative watch.
  • Wednesday – Congress passed a bill reopening the government though January 15th and suspending the debt ceiling until at least February 7th.
  • Thursday – Google released better than expected earnings and revenues. Shares rose, passing the $1,000 mark for the first time.
  • Friday – J.P. Morgan reached a tentative $4 billion settlement agreement related to mortgages it sold during the housing boom.

Our Take:

The deal to raise the debt ceiling wasn’t great, but it wasn’t bad either. At first glance, it sets up a repeat the whole debacle again early next year. But there are a few provisions which offer hope for a better experience. Part of the agreement appoints a bipartisan committee to negotiate future spending levels before the next deadline. It is hard to be too optimistic about this, but you never know. Also, the bill allows the Treasury to use “emergency measures” which reduce the chance of default if Congress again struggles to agree on a deal.

Probably more important, the Republican Party in general suffered real damage to its image. It isn’t clear leadership can control the more extreme members, but they will certainly try a different approach next time. After all, mid-term elections are creeping up.

Since almost no one expected default to happen, we’re a bit surprised stocks rose as much as they did this week. But for what seems like the first time in a while, there is no immediate major threat restraining prices. The debt ceiling, European debt crisis and turmoil in the Middle East haven’t gone away. But at least for the weekend, none seem imminently problematic. Let’s enjoy it.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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