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Are we headed for a “financial catastrophe”? Today’s news headlines paint a gloomy picture for the markets if Congress doesn't raise the US government's debt ceiling by June 1. However, the markets say otherwise.READ THE ARTICLE
Here’s why: Primary market indicators, such as stable yield spreads on corporate and municipal bonds, low stock market volatility, and the S&P 500 Index trading at a valuation in line with historical averages, suggest that markets are not worried about a default on U.S. debt. This lack of concern can be attributed to two factors: First, markets may not believe that Congress would allow a default to happen. And secondly, even if a default were to occur, markets may believe the damage would be less significant than anticipated.
The risk of worry: Regardless of our debt-ceiling situation, the fear of default may be a greater risk to you as an investor than the default itself. If we do experience any market decline, it would likely be temporary, thus being able to ignore short-term volatility could bring you rising asset prices over time. On the other hand, if a default doesn't happen or has minimal impact, selling out of fear may cause you to miss out on potential gains.
You may have heard the saying, “The higher the vix, the higher the clicks.” Fear always sells better in the news, but the sky truly isn’t always falling.