Stocks rose on Wednesday driven by the strongest auto sales since before the the recession. The S&P500 (^GSPC) rose 0.8%, and remains less than 3.5% off the record high set last month. Despite yesterday's strength tensions in Syria loom large over the tape.
This morning President Obama is meeting with Russian President Putin ahead of the G20 summit in St. Petersburg. Putin has been sharply critical of US foreign policy in general and saber rattling over Syria in particular.
Regardless of international protests consensus among US elected officials on a Syria growing. On Tuesday House Speaker John Boehner said he was supporting the President's plan to launch a missile strike. Yesterday a Senate committee approved an attack resolution.
As a general rule markets would prefer to ignore anything coming out of Washington, DC. Unfortunately yet another round of debt ceiling idiocy is staring us in the face. The Republicans have been vowing to fight tooth and nail, once again threatening a debt default rather than raising the debt ceiling again. In return the Democrats are sticking to their strategy of giving the GOP nothing.
It's exactly the same set up as we had in 2011. The infighting then led to a nearly 20% slide in stocks and the first credit downgrade in the history of the United States. No one expects an exact replay but it's close enough to give traders pause.
That's where Syria comes in. As far as markets are concerned Syria is little more than a blip relative to the global economy, but it matters quite a bit in terms of the horse trading that goes on behind the scenes in DC. In 2011 the President was able to jam whatever he wanted down the GOP's throat. This time he needs them.
The GOP felt like it had to rollover in 2011, which is one of the reasons the country is facing another potential default. This time the Democrats need something from the Republicans. In order to get support on Syria the President is going to have to give something up on the budget. Anyone telling you otherwise is naive.
A good negotiation results in both sides feeling angry. The Democrats are going to have to give up something minor to get approval on Syria. They aren't going to like that. The Republicans are going to hate having to cave on Obamacare, but unlike 2011, they'll be able to go back to their voters having exacted a pound of flesh from the debt negotiations.
The debt ceiling debate can drag on forever but Syria can't wait. As Mark Lehmann, president of JMP Securities, says in the attached clip, anything that brings the left and right closer together would mark an improvement.
"This may be a metaphor for Congress and the President finding a way to get things done as opposed to finding a way to argue," Lehmann says. Obama may emerge from the next month with an image as more of a consensus-building President. "If that's the case, the market will absolutely like it," he concludes.
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