The stock market picked up steam in February and surged upward much as it did in November following the election. There can be no question that investors are looking forward to a robust economy powered by lower taxes, fewer regulations and an aggressive rebuilding of the infrastructure of this country. The outstanding question is how will this be paid for with a government debt approaching $20 trillion and that is what investors are waiting to hear.
In the first two weeks of March the debt ceiling will be back in the news. You may recall the repeated crises in 2011, 2012 and 2013 over the debt ceiling which resulted at one point in a government shutdown. In 2015 President Obama and the Republican-controlled Congress suspended the debt ceiling until March 15, 2017, so it has been two years since we have heard much about this.
The debt ceiling is a limit placed by Congress on the amount of national debt that can be issued by the U. S. Treasury to finance its legal obligations. Those obligations include Social Security, Medicare, military salaries, interest on the national debt, and tax refunds, among other payments. The debt limit does not authorize new spending it just allows the government to pay existing liabilities which have previously been approved by Congress and the President of both parties. https://www.treasury.gov/initiatives/pages/debtlimit.aspx
Congress does not want a replay of the recent past. It is likely that we will see a vote before the middle of March to raise the debt ceiling and keep the government in business with a pledge to address the burgeoning budget later in the year. The media are likely to play this up and whether or not it will derail this stock market rally remains to be seen. Based on the positive momentum and focus of investors it could be a non-issue.
The other March event to watch is the next meeting of the Federal Reserve Board on March 14 and 15. A month ago it seemed unlikely that we will see a rate increase in that meeting, but as the month ended analysts place this possibility at 90%. This event occupied investors’ minds for the last several years, and we wrote numerous times that “bad news was good news” as investors responded positively to decisions not to raise rates because the economy was too fragile. That seems to have turned around in recent months to a more normal view as investors’ focus on anticipation of a stronger economy. Whispers of a rate increase appear to be of little concern and investors now view it as confirmation that the economy is getting stronger which is what they want. We will have to wait and see what the Federal Reserve Board decides and how investors react.
The market is strong and momentum is on the side of the bulls, but it is not without its headwinds. A pull-back similar to what we saw in December following the fast run up in November is not out of the question, but the outlook for 2017 remains positive.
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