Debt Ceiling Debate Weighs on S&P 500

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Fear over the debt ceiling has stock markets mixed today. As of 1:40 p.m. EDT the S&P 500 (SNPINDEX: ^GSPC  ) is up just 0.19% to 1,659 points. The largest ETF tracking the S&P 500, SPDR S&P 500 (NYSEMKT: SPY  ) , is up a similar 0.17%. The markets were looking fearful earlier as the CBOE Volatility Index (VOLATILITYINDICES: ^VIX  ) , also known as the "fear index," started the day up 4%. However, as stocks have drifted higher throughout the day, the index has fallen 4.2% into the red.

Yesterday, China reached out to the U.S. to express its concern over a potential default by the U.S. government. China has roughly 1.3 trillion reasons to be concerned, because it's the second-largest holder of U.S. debt behind the Federal Reserve. Today, Hayman Capital Management's Kyle Bass is warning of the calamitous effects of a default.

Bass, who profited from the U.S. housing collapse has invested in his belief that Japan's economy faces disaster, said today in an interview with CNBC:

If the politicians were really to stay at loggerheads into a prioritization of payments that as Treasury Secretary Lew is discussing or an actual payment default, look, there's nothing you can do to hedge yourself. All the money you're going to have is under your pillow, and it probably won't be worth as much as it is today.

He went on to say that he doesn't think it is likely to happen, "but policymakers have to realize the catastrophe that would ensue if they actually missed a payment."

In an effort to keep that from happening, President Obama announced today separate meetings with lawmakers from both parties. The president also has said he is willing to agree to a short-term debt-ceiling increase to give time for lawmakers to negotiate.

I continue to believe that the debt ceiling will be raised at the last minute. I also believe that, in both the public and private sectors, governance functions best when stakeholders educate themselves, take an active interest in what's going on, and hold their representatives accountable.

Want to Understand the Debt Ceiling Problem?
The Motley Fool's new free report, "Everything You Need to Know About the National Debt," helps you understand, with step-by-step explanations, how the government spends your money, where it gets tax revenue from, the future of spending, and what a $16 trillion debt means for our future. Click here to read the full report!


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 09, 2013, at 2:14 PM, PEStudent wrote:

    It's not weighing enough! My EMR and HCP DRIPs buy stock for me this week and I'd like them to fall a little farther than when I put in the orders on 10/1. They're both up half a percent today.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2675525, ~/Articles/ArticleHandler.aspx, 9/16/2014 9:37:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement