Wall Street rally short-lived after debt deal

The celebration on Wall Street over the debt ceiling deal didn’t last long.

The market opened sharply up this morning on euphoria that Congress and the White House had struck an agreement to raise the debt limit and avoid a potentially devastating default on the nation’s debt.

But within minutes, the mood soured on concerns about weak manufacturing data and fears that the deal will not be enough to deter major credit ratings from stripping the United States of its top credit rating in coming days or months. After a half hour, the market was in negative territory.


“I suspect a lot of individual investors will be a little confused by the markets’ reaction today,’’ said David Joy, chief market strategist for Ameriprise Financial, the parent of the Columbia mutual funds in Boston. “We got an initial relief rally, but it quick dissipated. Despite a deal in Washington, the cold hard reality is there are a lot of questions about the fundamental strength of our economy.’’

The Dow Jones industrial average leaped 139 points in the opening minutes of trading, before plunging as much as 145 points after the Institute of Supply Management reported released a key index showing little growth in the manufacturing sector. The market was down 24 points just after 3:3o p.m.

The reversal was highly unusual. It is only the tenth time since 1985 that the S&P 500 index of large US stocks has shot up more than 1 percent in the first 30 minutes of trading, only to surrender those gains and wind up down by 0.5 percent by 10:30 am, according to an analysis by Bespoke Investment Group LLC, a financial services firm in Harrison, N.Y. Four of those 10 volatile days occurred during the financial crisis in 2008.

In addition to the weak manufacturing data, investors also remained on edge today over concerns that Congress might reject the deal — neither the House nor the Senate are expected to vote on the deal before the markets close today.


In addition, many financial analysts warned that the United States still remains in jeopardy of losing its prized AAA credit rating from one of the major credit rating agencies in spite of the deal.

For instance, Standard & Poor’s recently said it is likely to downgrade its rating if the government didn’t agree to at least at least $4 trillion in cuts or tax increases to narrow the deficit, nearly double the amount under the pact Congress worked out with the White House.

The nonpartisan Congressional Budget Office estimated the compromise agreement would trim the deficit by only $2.1 trillion. And many details about the spending cuts remain up in the air, further undermining confidence in Washington’s ability to tackle the budget.


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