What US Debt Default Talk Means for the Stock Market - Mike Swanson (07/25/11) | Stock Market, Dow Jones, Dow, Bloomberg HT, III, Paragaranti

What US Debt Default Talk Means for the Stock Market - Mike Swanson (07/25/11) | Stock Market, Dow Jones, Dow, Bloomberg HT, III, Paragaranti

All the talk this weekend is about deft default. The US Treasury is going to run out of money come August unless Congress agrees to allow it to raise its debt limit. So far President Obama and the Congress have not been able to come to an agreement on raising it. Obama wants to raise taxes on "the rich" while Republicans don't want to do this and want some deeper spending cuts. I've gotten emails from people asking what will happen if they can't come to an agreement.

Well I'm not too worried about that. There probably will not be some complete agreement that solves this situation forever, but I fully expect some sort of temporary agreement to be announced before the end of next weekend that passes the buck down the road. To me this looks like a lot of political posturing and theater.

This is something that has been all in the news and the political talk shows this past week and so has grabbed the attention of the masses, but one thing is for sure - the financial markets don't care about it. If they did then the stock market would be collapsing and the interest on US treasury bonds would be rising to the moon already, but neither one of these things are happening. Instead the stock market has bounced over the past month and held on to most of its gains. We may see some nervous nellies do some selling about the debt over the next few days, but I expect the issue to be resolved soon.

If you are a political junkie this may be an issue that has captured your imagination, but it is a story that should not be factoring into your decision making as an investor.

All that matters there is the trend.

And right now we are in a cyclical bull market that started in March of 2009 and is now three years old. That means that it is in the latter stages. There may be about another 15% upside to the broad market averages over the next year, but right now the broad market averages are going through a sideways phase and we are in the third week of earnings seasons.

So far most of the big name stocks that have had earnings releases, such as GOOG and IBM, and are beating estimates are seeing there stocks gap up and are holding their gains. That is a good sign for the market. Read More