What to Watch for a Breakthrough or a Breakdown

October 7th Weekly Market Update

Last week stock market investors continued to cling to, if not actually climb, the wall of worry. Stocks were flat for the first week of the government shutdown, but that masks the intraday volatility seen last week as drops were quickly reversed each day. The market moves last week were in part prompted by reports and rumors emanating from Washington, D.C. on the state of the negotiations over funding the federal government and lifting the debt ceiling.

The funding for the federal government ran out at the end of the fiscal year, September 30, with the expiration of a continuing resolution that was passed in March of this year. With no agreement on a new funding bill, the federal government has partially shut down. In addition, the Treasury’s borrowing capacity has been at the current limit since May 2013, although it has employed extraordinary measures that allow it to borrow additional funds without breaching the debt ceiling, which now stands at $16.699 trillion. Those measures will likely be exhausted in the next couple of weeks. Both of these issues have the capacity to weaken the economy and investor confidence.

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