After 16 days of a government shutdown, Congress finally reached a compromise at the last hour to avert going through the debt ceiling. The Dow rallied over 200 points at its highest levels on Wednesday on news that a compromise was imminent. Had Congress not reached a compromise to raise the debt ceiling, it likely would have caused panic in the stock markets and an adverse affect on bond markets. Because of this, we were confident that a deal would get done.
The deal that was made does not include a long-term solution. Instead, it just kicks the can down the road. We will have to face the same issue again in February, when we are likely to come upon the debt ceiling again.
With focus off of the debt ceiling, we think it will mean bad news for the markets. Investors won’t be buying and selling on news. Instead the focus will shift to earnings. Earnings season has been largely ignored thus far, but has been mild at best.
With the government reopening, we will also get to see economic data that has been delayed in reporting. We believe that the Federal Reserve will continue its quantitative easing into 2014, as uncertainty in the economy and with the debt ceiling will still loom. Expect volatility throughout the rest of 2013 and early in 2014. Until we see a long-term solution come out of Congress, better economic data, and a better earnings picture, there will not be a sustained uptrend in the market. We are well positioned for this volatility and still expect to see another bear market before we get into a new secular bull.
Maeve Wilson serves as an Investment Officer at Pinnacle Trust. You can reach Maeve by emailing her at email@example.com or by calling her at 601-707-9222.