U.S. stocks are trading higher Thursday morning after their worst daily loss in eight weeks Wednesday. Still, the ongoing debt-ceiling debate in Washington is casting a pall of uncertainty over the market.
With just days to go until the August 2 deadline, the debate does not seem to be going anywhere fast. Later today the House will vote on Speaker John Boehner's revised plan to cut $917 billon over the next 10 years. Even if the bill passes, it will die in the upper chamber after all 51 Senate democrats — and two independents — vowed to oppose the measure.
Schwab's chief investment strategist Liz Ann Sonders is optimistic that some semblance of agreement between Republicans and Democrats will be reached by next Tuesday, and believes markets have been right not to heed panic of a default thus far. (See: Relax About The Stock Market Already, Liz Ann Sonders Says — The Outlook Is Good)
"I don't think either side will allow a default to happen and the reality is that there is still money coming in to pay interest on the debt," Sonders says. "The ratings downgrade, of course, is another story and that is something that I think most investors and business leaders are grappling with now."
But as we tread into the uncharted territory of losing our triple-A debt rating, The Daily Ticker's Aaron Task wonders if the markets shouldn't be more concerned.
Sonders says investors are not totally unprepared and that there is definitely caution amongst investors who have made subtle adjustments to investments like gold, credit default swaps and even Treasuries because even if we lose an 'A' the U.S. will the safe-haven of the world. (See: Thinking the Unthinkable: Investors Start Hedging Against U.S. Debt Default)
The reality is the U.S. is at great risk of losing our AAA status because S&P has threatened to downgrade U.S. debt unless $4 trillion in budget cuts are enacted; neither the Boehner plan or Senate Majority Leader's Reid plan even comes close to cutting that much.
If it were up to Sonders, there is one plan floating out there she'd vote for, but no one is talking about.
"I was quite impressed with the Simpson-Bowles recommendations," says Sonders, who sat on a bipartisan committee herself in 2005. "I thought it was an incredibly bold plan, but for a whole hosts of reasons it is not the plan now, but I think a plan like that would be cheered."
You can read more about Democrat Erskine Bowles' and Republican Alan Simpson's plan put forth last year as part of President Obama's bipartisan fiscal commission here.
Tell us what you think in the comments below or on our new Facebook page: Have you made any adjustments to prepare for a downgrade America's AAA debt rating?
- credit default swaps
- Democrat Erskine Bowles
- President Obama s
- Speaker John Boehner