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Debt Ceiling: Overview & Portfolio Implications

Here is the October 9, 2013 edition of “Snips.” If you’d like to have this info. delivered directly to your inbox, click here to sign up.


Snips2013 Fed BudgetOver the last few weeks there has been growing uncertainty about the debt ceiling and technical default. There have been mixed signals in the markets since the government shutdown earlier this month with the markets continuing to rise, however now the market has fallen into a correction as the debt ceiling deadline get closer, with the S&P 500 currently down -2.30%. While most economists believe that the long-term economic growth outlook remains positive, there will likely be challenges in the short term. Looking back to the last time the debt ceiling was raised in 2011, consumer and business confidence fell , and the market reaction was swift and painful. The U.S. government will reach their debt limit on October 17th, but technical default will not happen until October 31st. If the government failed to make payment on a sovereign bond, consequences would be felt globally. Most analysts believe this is unlikely, however, and that debt servicing would be prioritized over other spending. Many analysts are expecting that Congress will raise the debt ceiling to meet obligations.

It is likely that the debt ceiling will negatively impact U.S. equities, and for that reason we believe it is important to take extra precaution to ensure downside risk protection in these turbulent markets. We are constantly monitoring our different strategies to make sure they are properly structured to handle risk in the market. However, this does not mean our models cannot lose money.

In our active model, we have locked in our gains on our individual stock positions. For our ETF tracking the Russell 3000, we have moved our stop price to our purchase price to ensure we do not lose any money during this downturn.

We thank you for your continued trust during these turbulent times. It is our goal to serve our clients to our best ability. Please call us (206-386-5455) with any questions and concerns.


This information was obtained from the Federal Reserve, BLS, MorningStar, DOL, JP Morgan, Bloomberg and  other providers of economic data.
Investment advice is offered through
Synergy Financial Management, LLC • 701 Fifth Ave, Suite 3520 • Seattle WA 98104