Money Daily

Since peaking in late July, the North Korean stand-down two weeks ago and the massive sell-a-thon last Thursday, stocks have traded lower and recently, sideways, setting up a dangerous pattern as September approaches and congress gets back to “work,” if one can call their obstructionism and grandstanding actual labor.

Nothing is likely to come of the upcoming debate over raising the debt ceiling since all of the 535 poseurs in the Capitol have their careers tied to ever-increasing levels of federal debt. There will be drama, threats of a government default, finger-pointing and tweets aplenty by President Trump, but, in the end, there will be consensus on raising the current limit of $20 trillion to something more absurd, like $23 or $24 trillion.

A different scenario exists over the budget, where both parties in congress have their pet projects and promises to cash-heavy contributors. President Trump has no such constraints, and he is already disgusted over the lack of action by congress on many of the issues which got him into the White House, especially the failure to pass legislation to repeal and/or replace the regressive, destructive federal health care law, the Affordable Care Act (ACA), aka, ObamaCare.

There’s still time available before congress reconvenes (actually, they’re still in session, but barely, in order to prevent President Trump from making recess appointments) on September 5th, but anybody interested at top-ticking the market has been doing so over the past month. That trend will continue over the remaining seven sessions leading into the Labor Day holiday weekend, because after that, there’s far too much uncertainty on the plate.

In addition to the congressional circus there’s a FOMC meeting mid-month, at which time the Fed is likely to change language regarding drawing down their bloated balance sheet, though likely falling short of actually do so for another few months. A hike to the federal funds rate is also on the table, but looking increasingly unlikely at the September meeting.

Thus, there’s a good probability that stocks will gyrate lower in the near term and a real possibility for a 5-10% correction in September. Overall, though, there’s still enough upside potential and animal spirits to keep the long-toothed bull running unless the politicians act out in partisan, foolish ways, a contemplation that must be taken with due seriousness.