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Uncertainty Rocks the Boat

Stock Market News

October 2013

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Uncertainty Rocks the Boat

Perhaps investors have grown hardened to budget wrangling and warnings of government shutdowns – or perhaps they’re weary of the politicking. Whatever the reason, U.S. investors scarcely responded to the impending government shutdown – the first in 17 years. Many investment experts believe that the initial impact of a shutdown will not be especially significant on the forces that influence the markets – and most are betting that the shutdown will not last for long. If the shutdown drags on and solutions cannot be found to the deficit debate, worries will mount. In an unprecedented move, some 250 industry groups signed a letter put together by the U.S. Chamber of Commerce on Sept. 30 calling for a quick resolution to the stalemate. Meanwhile, investors trying to keep track of the situation are seeing some contradictory, confusing trends at play. Here’s a summary of some of the month’s major talking points:

  • Although the debt-ceiling debate seems to have ruffled investors’ feathers less than anticipated, some pundits believe that negative news headlines will create bumps in the road for the next month or so.
  • Many analysts see the action on Capitol Hill as political brinkmanship with regard to raising the debt ceiling so that America can avoid a default. The United States is expected to reach its current borrowing limit no later than Oct. 17. A government shutdown will most likely affect large capitalized companies because generally they are the recipients of most government contracts. Small caps aren’t so reliant on government work, and they benefit from being connected with the U.S. economy, which is performing better than almost any other nation’s economy.
  • The Russell 2000 – an index that measures the performance of the small-cap segment of the U.S. equity universe – hit a record high at the end of September just as the large caps were declining.
  • The Federal Reserve’s decision to continue its “quantative easing” program took many investment experts by surprise. Primed as they were by Chairman Bernanke’s earlier remarks, few expected the Fed to continue its monthly bond purchases.
  • The debt-ceiling debate and budget argument comes at a time when companies are preparing to disclose their third quarter earnings. Current turbulence in the political arena shouldn’t have any effect on numbers from the last quarter, but some investment pros are suggesting that earnings might not be as solid as once hoped.
  • Some analysts note a consumer spending trend toward high-ticket purchases like homes, cars, boats and durable goods. In turn, this suggests that these industry sectors might be due for a surge.
  • The traditional theories that either economic performance drives stock prices or that rising stock prices boost economies don’t seem to be holding true. That elusive element, optimism, seems to be playing a big role in today’s markets, but there are many theories (mostly unsubstantiated) as to its cause.

The comments above are intended as general observations and are not intended to be a substitute for professional advice from your tax and investment advisors.

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These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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