Brian Spinelli discusses our thoughts on how the markets are grappling with the US debt ceiling. Right now, there is no negotiated deal and the US will hit its debt ceiling in June. Congress is trying to negotiate and we are seeing incentives on both sides to get this deal done. To understand the impact, we can use history as a guide. If you go back to the July 2011 timeframe, you can see how markets reacted the last time when this was an issue. In July 2011, the US equity markets began reacting quite negatively to a potential debt ceiling hit. Stocks became extremely volatile, but shortly thereafter, volatility dropped significantly and stocks began to recover in a relatively short time. At the same time S&P downgraded the US government from AAA status to AA status. As we move forward to now, that’s a pretty big incentive to get things done. We do believe politicians are aware of that. The timing around when that deal will happen is the hard part. The closer we get to the date, we expect stocks to become more volatile. Right now they have not been. The most volatile right now is the 1 month US treasury bill which has skyrocketed in yield from around the 3 1/2 range upwards of five, which is pretty significant. Watch this video now to learn more.
