James Dennin, Kapitall: Last time Congress battled over national debt, the S&P fell almost 17% the next day. Which stocks are prepared in case history repeats?
All eyes are on Washington this week, as concerns of another war have subsided and the markets have turned their attention to the budget battle in Congress. House Republicans have been very clear that they intend to use the upcoming debt ceiling to create leverage in their fight to prevent the implimentation of the Affordable Care Act, among other things.
[Read more from Kapitall: Farm Bill Deadline Looms: Can These Stocks Grow Without New Legislation?]
The US Treasury could run out of money to fund its operations as soon as October 1. While a government shutdown would be destructive, most analysts are saying that refusing to heighten the debt ceiling would have profound economic implications itself.The last time Congress failed to raise the debt ceiling in a timely manner, America's credit was downgraded and the S&P 500 slipped almost 17% in a single day. While stock markets have improved considerably since 2011 – the best annual gain in four years - many are worried that a debt ceiling debate could jeopardize the fragile recovery. Besides, the downgrade in US credit has already resulted in billions in new borrowing costs. If a similar situation were to play out, it could get considerably more expensive for American firms to borrow money. Uncertainty over Congress is likely why Chairman Bernanke and the Federal Reserve have delayed tapering even further into the fall than previously expected. This will help keep borrowing costs down, although American markets will not, as they did in 2011, benefit from extra liquidity resulting from a European debt crisis. Investing ideas While the S&P 500 is likely to take a hit in the coming weeks, it may also recover quickly. Republicans, adamant as they may be about stopping Obamacare, do not want to see borrowing costs skyrocket and equities plummet any more than Democrats do.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV