The question that I received the most over the past six weeks has been, “How will the debt ceiling crisis and Government shut down affect the market?” My answer has remained the same: long term, this should have very little effect on the stock market. I believed this because I never thought that our lawmakers would allow the United States to default on its obligations and that this would be a non-issue. I was, however, incorrect in thinking that they wouldn’t allow the Federal Government to shut down, so my confidence in Washington D.C. was shaky at best.
Now, with the Government re-opened and the debt ceiling raised, the next question is, “What’s going to happen when the debt ceiling and Government shut down topics come up again?” This is an important question because of how Congress and the President have dealt with the problem: essentially kicking the can down the road a bit without any long term solutions.
First let’s take a look at what just happened. The U.S. Government, which hasn’t had a budget in years, is funded using “continuing resolutions” (CR) to maintain operations. The latest CR expired on September 30th and, with no new agreement, the federal Government partially shut down. To reopen the Government, on October 17th, Congress passed another CR that will last until January 15, 2014.
The debt ceiling is the maximum amount that the U.S. Government can borrow. This allows us to pay our Treasury obligations and technically stay out of default. The debt ceiling has been raised, extended, or revised 78 times since 1960, which is usually done as a matter of routine. The recent action suspended the debt ceiling until February 7, 2014. And with “extraordinary measures” by the Treasury we should be back in the debt ceiling debate by June or July of next year.
Also part of the deal was to create a bi-partisan committee to propose a deficit reducing budget by December 13th. Sound familiar? It is very reminiscent of the 2011 “super committee” that resulted in the 2013 sequestration.
The takeaway from this situation is that the gridlock in Washington has created the “governing by crisis” mentality that we are in now. Congress has once again delayed any substantive action. The problems still exist and the players still do not want to work together to address them. The next Government shut down could happen on January 16, 2014, and the debt ceiling debate will happen shortly thereafter. I believe that the lawmakers will resolve these issues, but most likely on another short term basis. The House Representatives that were holding out for large budget cuts did not get the result they wanted with partially shutting down the Government, and will probably not repeat the process.
So, how will this affect the markets? Long term, this should have very little effect on the stock market. As we saw this time around, the markets have gotten very use to this type of distraction. Short term, there were some significant moves both to the upside and the downside. However, over the last month (since 9/23/2013), the S&P 500 is up 3.1%*. And this is in the midst of a year to date return of 23%*. Even the bond market has strengthened through all this with the ten year Treasury yield dropping from 2.71% to 2.51%** over this same time period (lower yield = higher price).
Investing in turbulent times can be stressful. Having a Financial Advisor to help you through these times can help ease the tension and keep your portfolio allocated correctly. Here at Verity Credit Union we have a full service Investment Department that can help you with all your investment needs. To schedule an appointment, please contact Bre Lowry at 206-361-5312 or BreannaL@veritycu.com.
* Yahoo! Finance (^GSPC)
** Yahoo! Finance (^TNX)
Check the background of this investment professional on FINRA’s BrokerCheck.
An Investment Advisor registered through CUSO Financial Services, L.P., Gavin has 22 years of experience as an advisor in the Puget Sound area.
“I believe every client is unique and deserving of a personalized financial plan that will help them reach their individual financial goals. Before I make any recommendations, I like to get to know my clients. By asking the right questions, and developing an honest, trusting relationship I can really get a sense of what’s going to work best for them.”
Gavin graduated from the University of Washington with a BA in Business Administration and started his financial career with US Bank in the Investment Department. Prior to joining Verity in 2006, he spent eight years with Piper Jaffray.
So what is Gavin’s vision for his dream retirement?
“My dream retirement would be absolutely worry free: financially, emotionally, and in every aspect of life. My finances would be in order so expenses for travel, luxuries, and gifts for the kids, grandkids, and great-grandkids would be taken care of. My kids would be financially sound, so I would be confident in their prosperity. This would give me the freedom to travel and play and do whatever it is I want to do.”
When Gavin’s not working, he enjoys spending time with friends and family, watching Husky football, and taking weekend trips around the Northwest.
Gavin is registered to transact securities business in the states of WA, OR, CA, AZ, FL, HI, ID, IL, MN, NM, NY and VA.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
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