Political gridlock might be bad for the nation, but it's good
for the stock market, so goes a popular axiom. But is that always
"Hardening positions on the federal budget and borrowing
limit, and recent political setbacks suffered by both President
Barack Obama and Republican congressional leaders as they go into
the fight, are raising the odds of a government shutdown, debt
default or near-miss that could roil equities markets."
During 2011, the debt ceiling fight (political gridlock) between
U.S. politicians, shook the S&P 500 stock index (NYSEARCA:SPY)
to a 16.58% decline from Jul.22 to Aug.8. (See chart below)
The Aug.8 date was the first day of trading after the U.S.
government's credit downgrade by Standard & Poor's from AAA to
AA+. Although stocks (NYSEARCA:SCHB) gained 12% thereafter, the
S&P 500 ended the year basically flat.
Since the federal debt limit was raised to $16.69 trillion in
May, the U.S. Treasury has been using "extraordinary measures" to
avoid defaulting on the nation's debts. By mid-October, these
extraordinary measures will be completely exhausted unless Congress
Thus far this year, the VIX, which measures stock market fear or
volatility (CBOE:^VIX), has experienced a sudden spike roughly
every two-months. On June 20, the VIX (NYSEARCA:VXX) hit a yearly
high of 20.49.
Gold Experts Keep Misleading the Public
President Obama's approval rating is currently 44%, according to
Gallup's latest poll. The Dow Jones Industrial Average
(NYSEARCA:DIA) has gained 12.3% over the past five decades
proceeding Obama's first term, when presidential approval ratings
hover between 35% to 50%, according to Ned Davis Research.
As presidential job approval ratings sink, so do stock market
returns. When approval ratings fall between 50% and 65%, the Dow
had an average annualized gain of just 5.4%. President Obama's low
point in approval ratings was 38% from Oct.15-17, 2011.
The average approval rating for U.S. presidents over the past 75
years is 54%.
Contrary to conventional wisdom, political gridlock is
not always good for the stock market - especially when it
involves the potential for government debt defaults and other
bizarre scenarios that our generation has never seen or
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