While a potential debt ceiling deal
failed to gain much traction over the weekend
, I'm still reasonably optimistic that some sort of patchwork and
limited deal to, at least temporarily, extend the debt ceiling
will be reached around this Thursday's deadline.
But while I believe a US default will be avoided,
the continuing political drama
does have implications for investors. As I write in
my latest weekly commentary
, there are three:
Economic growth will be slower than it otherwise would
Were it not for all of the political turmoil and uncertainty, I
would expect fourth-quarter US economic growth somewhere between
2.5% and 3%. Given the drama in Washington, 2%
gross domestic product (
growth is a more likely number.
The Federal Reserve (Fed) will probably adopt a slower
pace to tapering.
The current political backdrop is causing more economic
uncertainty, and the government shutdown is delaying the release
of economic data that the Fed relies on to make its policy
Consider international equities.
In today's economic and political environment, investors
(particularly those who are overweight US stocks) may want to
consider moving more of their assets into international equities.
International stocks are less expensive than US equities and the
US budget impasse calls into question the United States'
To be sure, in the near term, any budget agreement would be
viewed as a positive. Still, as I wrote last week, if the best
Washington can do is a series of short-term extensions,
there will be an economic price to be paid
. Ongoing, and elevated, levels of political uncertainty will act
as a drag on business and consumer confidence, weaken economic
spark higher levels of market volatility
In fact, there already are signs that the government shutdown
is causing growing economic pessimism among US consumers. The
University of Michigan's index of consumer sentiment recently
hit its lowest level since January
, and in general, lower confidence leads to lower spending -- a
negative for economic growth.
Russ Koesterich, CFA,
is the Chief Investment Strategist for BlackRock and
iShares Chief Global Investment Strategist. He is
a regular contributor to
and you can find more of his posts