Signed, sealed, delivered

Like a well-choreographed action flick, politicians took the markets and the nation to the proverbial midnight hour before hammering out an agreement that ended the government shutdown and raised the debt ceiling. Unlike a thriller, this was real life.  On the morning of October 16, Senate negotiators announced a compromise that easily passed the Senate that evening, followed by a vote in the House and a signature by the president.

What did the deal accomplish? Here’s a short summary condensed from the Wall Street Journal:

  • The deal keeps the federal government open at current spending levels until January 15.
  • The debt ceiling will be raised through February 7.
  • Lawmakers will also be required to craft a long-term budget plan by December 13.
    • Senator Majority Leader Harry Reid said the committee to accomplish the task will be led by Sen. Patty Murray, a Washington Democrat, and Rep. Paul Ryan, a Wisconsin Republican and the 2012 VP candidate under Mitt Romney.
  • It includes no major alterations to the 2010 health-care law, though it does include new procedures to verify the incomes for those receiving government health-insurance subsides.
  • It does not include a provision granting federal agencies more flexibility to ease the effects of the sequester (annual automatic budget cuts included in the 2011 budget deal).
  • The next round of spending cuts (sequester) set for mid-January will bring annual spending levels down to $967 billion from $986 billion, largely through cuts to defense spending.

Because the agreement keeps the government open through mid-January and allows the Treasury to borrow through February 7, there are concerns we may see a sequel to the drama in early 2014. However, Republican leaders in the Senate have said there will be no government shutdown next year (Wall Street Journal).

Return to the fundamentals

The financial markets are quickly turning the focus back to the fundamentals, including the third quarter earnings season, with a slew of releases set between Oct. 21st and Nov. 1st. (Thomson Reuters).  Thus far, 85 of the S&P 500 firms have reported earnings. Given low expectations going into Q3 earnings season, 64% have topped analysts’ profit forecasts, pretty much in-line with historical average (Thomson Reuters).

We will also receive a number of economic reports that have been delayed by the partial government shutdown.  Some of the data may be muddied over the next few weeks, and we may not get clearer picture of the economy until December, when much of November’s activity is reported. That’s a big reason why there are growing expectations that any changes in Federal Reserve policy will likely be delayed until at least the December meeting (or beyond).

There is now rising speculation that the Fed may hold off until 2014 before it begins to cut back on its $85 billion in monthly bond buys (QE3) likely contributed to the late-week rally in equities and the easing in longer-term Treasury yields.

Still, even if it’s temporary, confidence appears to have been impacted. According to a Gallup survey, economic confidence took a big hit over the last few weeks; however, it’s much more problematic whether spending will be influence by short-term swings in sentiment.


Note: each data point is a 3-day rolling average

It should be an interesting 4th quarter as we wind down 2013 and start looking to 2014.  Our longer term outlook is still a cautious one overall, with continued underweighting in stocks for all risk levels, and a more diversified, balanced approach with exposure to the “alternative” asset areas and fixed income assets (bonds) of various types as well. We have made some adjustments and have “re-balanced” all portfolio risk levels recently in an effort to keep portfolios allocated to our current objectives.  Over the past few weeks, we have seen interest rates start to decline, which helps fixed income assets, and also prices in the precious metals have moved higher as well.  We will keep you advised.

We appreciate the privilege to be of service and please don’t hesitate to call if you ever have any questions or we can be of further service in any way.  Also, be sure to call now to schedule your personal review time, either in person or by phone, if you have not already done so for this quarter.

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.

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