Back towards the beginning of July, the Dow Jones Industrial Average (DJIA) was up 13.8% for the year, and the S&P 500 Index (SPX) followed pretty close behind, coming in around 13% over that same time frame. Even though Wall Street had just experienced a sharp fall-off towards the end of June, the market proved resilient, and the year’s second uptrend began to take shape shortly after July 4.
From a global perspective, however, the US equity market seemed to be largely the exception to the rule, as many of the world’s leading markets underperformed, at least in relationship to the US markets. Firmly ensconced in the category of underperformance was the China equity market. As it turned out, the moment proved to be somewhat less a harbinger of a worsening economy than an opportunity to buy the dip.
The Senate has rejected the House bill, and the government will shut down at midnight if the House doesn’t submit a “clean” bill with ObamaCare issues removed. The current thinking is that is unlikely. What is more likely is a day or week extension to allow time for more negotiating (as if any has really taken place). How will the market react?
You know by now that the Fed last week opted not to begin tapering its quantitative easing (i.e., buying of Treasuries and mortgage-backed securities), primarily for two reasons, I believe. First, rapidly rising long-term interest rates were already starting to hurt the recovering housing market (and the resulting wealth effect).