The stock and bond markets came under increasing pressure in September as higher inflation, slowing economic growth, drama over raising the debt ceiling, and a possible default by China’s largest property developer weighed on markets. More importantly, the Federal Open Market Committee (FOMC) suggested that the Federal Reserve could begin to “taper” the pace of bond purchases beginning in November.
The S&P 500 index fell 4.75 percent in September with much of that coming in the last few days of quarter-end. The yield on the 10-year Treasury Note rose 0.22 percentage points to 1.52 percent in four weeks, and a barrel of West Texas Intermediate oil rose from about $68.50 to $75.
Political brinksmanship over the debt ceiling was front and center as Treasury Secretary Janet Yellen warned of “catastrophic consequences” should the U.S. default on its debt. She went on to say it could cause “a steep drop in stock prices” and put the economy into recession.
If you say things like that near the end of a quarter when liquidity is light, it is going to cause a reaction. Despite the rhetoric, however, the reality is that the democrats can raise the debt ceiling by themselves. This is about politics. But if you are going to play with matches, people can get burnt.