Potential Progress in Shutdown & Debt Ceiling Debate

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Market Digest – Week Ending 10/11

Nine days into a government shutdown and just six days from potential federal debt default, investors remain mostly optimistic deals will be reached to solve both issues. Stocks finished higher for the week and bonds were relatively flat. Thursday marked a potential breakthrough as both sides seemed to find common ground to temporarily extend the debt ceiling. Still, the week ended with nothing concrete accomplished.  On Wednesday, Janet Yellen was officially named successor to Ben Bernanke as Chairman of the Fed.

Weekly Returns:

S&P 500: 1,703 (+0.8%)
FTSE All-World ex-US: (+1.2%)
US 10 Year Treasury Yield: 2.68% (+.03%)
Gold: $1,270 (-3.1%)
USD/EUR: $1.355 (+0.0%)

Major Events:   

  • Monday – The White House indicated it would be open to a temporary increase in the debt limit to provide more time for negotiations.
  • Wednesday – President Obama formally announced Janet Yelled will succeed Ben Bernanke as Chairman of the Federal Reserve.
  • Wednesday – Minutes released from September’s Fed meeting showed division on when to begin tapering of bond purchases.  Some voting members prefer to begin tapering this year.
  • Thursday – President Obama and House Republicans began discussions on a proposal to extend the nation’s borrowing authority for six weeks. Stocks rose.
  • Thursday – Weekly claims for jobless benefits rose to the highest level in six months.
  • Friday – Senate Republicans said President Obama is open to changing a tax on medical devices in order to end a partial government shutdown and raise the debt limit.
  • Friday – JP Morgan announced a $370 million quarterly loss driven litigation surrounding practices in the mortgage market and the “London Whale” trading debacle.

Our Take:

A 2.3% excise tax on medical devices may save the world from learning what happens if the largest reserve currency defaults on its debt. Other than medical device manufacturers, no one cares much about this random aspect of Obamacare, but it may become a convenient scapegoat both sides can use to claim victory. Republicans can say they got changes to Obamacare and Democrats can say not much was changed. Technically, both would be right.

It is too soon to get excited. So far, all that is on the table is a six week extension of the debt ceiling, and bitterness continues to run high. It is very disturbing the shutdown has been allowed to go on this long, but at least there seems to be progress.

While we hope to see resolution soon, we don’t expect much upside for the stock market. Pretty much everyone expects a deal so actual passage is unlikely to do much for the market other than avoid a potentially nasty alternative.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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