Money Pros: Markets remain highly sensitive to D.C. turmoil; what you should do to protect yourself

Charles Dharapak/AP

The debt ceiling is potentially a much bigger issue than the shutdown.

The Money Pros are standing by to take your questions.

Q. In light of the Federal government shutdown and the looming debt ceiling deadline, where is the stock market heading and what should I be doing to protect myself?

A. We expect a debt ceiling agreement to be met, since the consequences of one not being met would be disruptive.

Still, markets remain highly sensitive to events in Washington. Investors still remember the summer of 2011, when stock markets around the world fell by over 20% during late July and early August, and remained volatile for the rest of the year.

The main culprits back then: mounting federal debts and dysfunction in Washington.

That summer, rating agency Standard & Poor’s issued its first-ever ratings downgrade of our nation’s debt, and other rating agencies warned of similar potential downgrades.

Among the reasons for the downgrade were pessimism over the “gulf between the political parties” on fiscal issues and concern over the nation’s growing debt burden.

The current partial government shutdown shows us that Congress remains as divided as ever, but there is some encouraging news.

Since 2011, the deficit has fallen by half and investment is rising as a share of the economy. In other words, key drivers of our fiscal health are gradually but steadily improving.

For these trends to continue, avoiding recession and encouraging growth is essential. In order to do that, Congress must be willing to make concessions and negotiate a debt ceiling bill.

The debt limit is potentially a much bigger issue than the shutdown. If a deal is not struck that raises the current $ 16.7 trillion debt ceiling, then a default or downgrade would probably follow.

The resulting fallout would seriously damage the global economy and financial markets. Given these high stakes, markets are probably right in betting that an agreement will be found, although the exact path to resolution remains unclear.

So what’s an investor to do? We are reminded that the worst mistakes in investing usually happen as the result of emotional decisions made at the height of hysteria. So, above all, stay calm.

Ask yourself if your portfolio is still as diversified as it should be. After all, we have had a 110% move in the stock market since the 2009 market lows.

With markets near multi-year highs, it might pay to examine whether your mix of stocks and bonds is still consistent with your goals and risk tolerance.

Above all, remain open-minded and remember that sometimes the best opportunities present themselves during times of tremendous uncertainty.

Kevin Caron

Caron is a market strategist at Stifel’s Private Client Group.

Do you have a question for the Money Pros? Send it to pfurman@nydailynews.com.

Yahoo Local News – New York Daily News

http://newyork.greatlocalnews.info/?p=15091

via Great Local News: New York http://newyork.greatlocalnews.info