The US is now 2 weeks out from a true tag of its $16.394 Trillion debt ceiling. For the past few months, the US Treasury has undertaken “extraordinary measures” to continue “paying the nation’s bills” by using budgetary sleight-of-hand equally nearly $400 Billion. According to Treasury Secretary Jack Lew, those measures will be exhausted sometime around October 17th.
As the US again approaches this threshold – in the context of an ongoing federal government shutdown, no less – it’s worth spending a moment reviewing how the US stock market (SPX) acted on and reacted to 2011’s political histrionics in the period leading up to the 11th-hour resolution to that year’s debt ceiling impasse. 2 years apart, there are many fiscal, political, economic and market factors impacting this debate differ from 2011; but many points are held in common, as well. The past may prove more instructive than we prefer – or dare – to think.
Reviewing the chart below, consider these questions:
- Was the Standard & Poor’s downgrade really a cause of the market sell-off, or mostly an afterthought?
- Deliberation between parties, Houses of Congress and the President was met with market indecision; what about agreement?
- Counterintuitive as it seems, after holding relatively steady through the period of political deadlock of the debt ceiling debate, could equity markets “sell the solution’ once again?
S&P 500 (SPX) – May-September 2011: Ebb, Flow and Culminating Cascade of the 2011 Debt Ceiling Debate
Twitter: @andrewunknown and @seeitmarket
Author holds no positions in instruments mentioned at the time of publication.
“Capitol with clouds” image sourced from vehiclevoice.com
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
