As the U.S. Government gets closer and closer to reaching the cap of its $16.7 trillion debt ceiling we get closer and closer to running the risk of the U.S. Government going into default. Since May the government has avoided defaulting on any of its bills by employing emergency measures to manage its cash, such as suspending investments in pension funds for federal workers. Currently the government is in a stalemate as the Obama administration has vowed not to negotiate with Congress over the debt ceiling. Today Treasury Secretary Jack Lew said that he United States could have less than $50 billion in cash in mid-October when the government exhausts its legal borrowing capacity.
The debt ceiling idea came about in 1917. Before then, Congress had to approve borrowing for each item when the government needed money. Since 1960, Congress has acted 78 times to permanently raise, temporarily extend or revise the definition of the debt limit—49 times under Republican presidents and 29 times under Democrats.
Concerns have obviously taken an effect on the U.S. markets which has now given up all of its gains from last week with the Dow Jones and S&P 500 currently on 4 day losing streaks. The Dow Jones fell a further 66.79 points to end at 15,334.59 and is now down 375 points since its peak last week. The S&P 500 slid back beneath 1,700 to close at 1,697.42 and has seen significant divergence in its money flow. The NASDAQ was able to stop the bleed for now and closed up by 2.97 points to finish at 3,768.25. On the other hand the Russell 2000 Index, which measures the performance of the small-cap segment of the U.S. equity universe, rose to a new all time high today. Small-cap stocks have led for most of the year, surging nearly 27 percent.
Tomorrow we will see earnings announcements from 8 companies including AutoZone Inc, Bed Bath & Beyond Inc, Jabil Circuit Inc, and SYNNEX Corp. On the economic front we will also see numbers from the change in the total value of new purchase orders with manufacturers for durable goods; New Home Sales; and Crude Oil Inventories the Richmond Manufacturing Index. Be sure to listen to tonight’s Trading Room if you have not already as it most surely provide some fantastic knowledge and education. Happy Trading!!