The Senate likely will not vote on a stopgap spending bill until this weekend, leaving the House just one full workday to act before spending authority for the federal government expires on Oct. 1. The House and Senate are at odds over language that withdraws funding for the 2010 health-care law. On another fiscal front, Treasury Secretary Jacob J. Lew told Congress yesterday that the extraordinary measures being used to avoid breaching the debt ceiling “will be exhausted no later than Oct. 17.” Failure to increase the debt limit could lead to a downgrade of the U.S. government’s credit rating.
Fear Is Increasing, But Not Significantly
While there is no question the political drama in our nation’s capital is a negative for stocks, will it derail the bull market in stocks? Obviously, it is too early to definitively answer that question, but we can monitor the market’s current temperature using risk-on vs. risk-off ratios. The weekly chart below shows the demand for Treasuries (TLT) relative to stocks (SPY). The orange arrow highlights the impressive outperformance of bonds this week. However, the gains in TLT this week have not been enough to change the look of the weekly demand profile, which says bonds have some work to do to flip the playing field back to risk-off.
Economic Data Not Shouting “Imminent Recession”
Could the political process in Washington spark a correction or pullback in stocks? Sure it could, but studies of similar historical cases show the markets tend to stay focused on the bigger picture. From The Wall Street Journal:
The S&P 500 is riding a five-day losing streak, its longest of the year. But history suggests a stock selloff prior to important deadlines in the nation’s capital is actually par for the course.Stocks have tended to drop in the 10 trading days before a potential government shutdown and then rebound in the 10 days after a shutdown resolution was reached, according to Deutsche Bank forex strategist Alan Ruskin, who analyzed 17 instances dating back to 1976. He’s in the camp that says stock investors should use any future dips as buying opportunities.
If the focus shifts back to the economy, the news on that front has continued to be strong enough to discount the imminent recession threat. From Bloomberg:(...)Click here to continue reading the original ETFDailyNews.com article: Dow Jones Industrial Average: Is The Market Tipping A Bearish Hand?You are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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