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Debt Ceiling Boost May Slow Stocks

NEW YORK ( TheStreet) -- History says the eventual raising of the debt ceiling is likely to at least slow the market's recent advance.

According to Standard & Poor's, the debt ceiling has been raised 53 times since President Richard Nixon took office in 1969, and the median performances in the one- and three-month periods following the increases are gains of 0.6% and 0.9% respectively. In both cases, that's less than median appreciation of 0.9% and 2.2% in all other months.

"Could a lackluster performance for U.S. [stocks] lie ahead as a result of the debt ceiling debate?," writes Sam Stovall, chief investment strategist at S&P Equity Research. "Even though history is a guide, and never gospel, it warns us not to get too excited should the deal get done."

On the bullish side of the ledger for stocks, the market's technicals are promising and second-quarter earnings season is going well with 73% of the 148 companies in the S&P 500 that reported their results so far beating Wall Street's expectations by an average of 6.4%, according to CapitalIQ.

But the bears have the economic data on their side, as well as whatever the fallout ends up being if the United States ends up defaulting, putting its Triple-A rating in jeopardy.

Stovall notes how far expectations for second-quarter GDP have fallen since March, which in turn is bringing down the growth view through 2012.

"In early March 2011, S&P Economics estimated Q2 GDP growth of 4.0%," he writes. "Now, however, it sees only 1.7% growth as a result of the effects of the disaster in Japan, the worse-than-expected weather in the U.S., higher energy costs and the increase in the unemployment rate, just to name a few."

If second-quarter GDP does come in under 2%, as the first-quarter number did [1.9%], Stovall says another interesting factoid comes into play.

"Two successive quarters of subdued GDP growth were a coincident or leading indicator of economic recession," he writes. "Indeed, in the six times since 1948 that the U.S. posted real GDP growth of 2% or less, we later found out that the economy had recently slipped into recession, or would do so in the next 12 months."
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