With the House GOP planning to use the debt limit as a bargaining chip to cut federal spending and President Obama calling such a position “absurd
Boston MA (PRWEB) January 18, 2013
LeaseQ, one of the leading providers of equipment leasing and financing in the United States, says that certain market areas in the US economy are unconcerned over the furor surrounding the latest debt ceiling debates. Stocks have been reaching five year peaks, and the market’s overall fear gauge has dropped to a five year low, a sign of increasing optimism among business owners. Some however, fear that this may be ill advised ahead of what is projected to become a bitter political brawl over borrowing limits on Capitol Hill.
Using the July and August 2011 debt ceiling discussions as a precedent, the markets’ current optimism appears to be misplaced. In those two months, the S&P 500 dropped 17% from peak to trough, and the market’s fear gauge, more common known as the Chicago Boards Options Exchange Volatility Index tripled from 16 to 48.
With the House GOP planning to use the debt limit as a bargaining chip to cut federal spending and President Obama calling such a position “absurd”, the stage is set for a particularly volatile exchange on the matter. However, many opinion strategists and talking heads do not see any correlation between a low VIX and the upcoming debt ceiling talks, mainly because 2011 was not an ideal template by which to measure a reaction. At that time there was still the fear that the US might slip back into a recession and that the European debt crisis would spread.
When S&P Ratings downgraded the US to AA+ credit rating in 2011, it sent equity markets scrambling, while Treasuries rallied. Some investors believe that the shock of the credit downgrade has worn off, and another downgrade would have little demonstrable impact. A second downgrade would place the US credit rating in the AA category, which would cause a number of funds based in AAA securities to sell Treasuries.
The next debt ceiling debate is expected to begin next month, and as such many investors are adopting a wait and see approach on how this plays out. VIX futures are predicting a jump in volatility next month, mainly due to much of the expected political bickering and stonewalling coming out of Washington. Time will tell if this latest debt ceiling debacle helps or hampers the struggling US economy.
Based in Boston MA, LeaseQ is one of the leading providers of business and commercial equipment leasing and financing, with options available for all kinds of business needs, and online approval provided within a matter of minutes.