This is Sheraz Mian filling in for Steve Reitmeister while he's away today.
Stocks remained in the red last week as the debt debate refused to come to a an end. With the deadline date now literally in our face, we will likely get a temporary debt ceiling increase and leave the thornier deficit issue for a later date.
What this course effectively ensures is a rating downgrade from at least one of the agencies. They have been threatening a downgrade all along if the debt deal failed to address the deficit issue. But judging from the response of the bond market, a rating downgrade may not exactly be the end-of-the-world event after all. The stock market, it appears, did not get this memo.
A much bigger problem than the Debt Drama is the economy's near-term growth prospects after the GDP report spilled the beans on Friday. Not only was the second quarter's growth much weaker than expected, but whatever growth we thought the economy had in the preceding quarters was revised down. Turns out, the U.S. economy was in much worse shape in the first half of the year than anyone knew.
The key issue now is what impact this new knowledge will have on growth expectations for the coming quarters. I would expect the growth worries to take back center stage as the Debt Drama comes to an end.
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