News and the Markets A Discussion of the Debt Ceiling Crisis and its Effect on the Stock Market
As an educator committed to financial literacy for everyone, I am often asked about the effect of news on the stock market. This excellent question needs a complete answer.
If you are a long-term investor, day-to-day news has a different impact on your long-term portfolio than it has on a High Frequency Trader who is using the news to find arbitrage trades to trade in the millisecond timeframe. What I am saying is:
News is relevant to how you are using the markets to make income or profits.
We have heard a deluge of discussions about the debt ceiling this summer but no one has asked the most important question: How did the stock market react the last time a debt ceiling debate-risked default for the US government.
Research shows that the last time Congress was at an impasse was in 1979. Since the best way to determine how the market reacted to the near disaster of the US government defaulting or in simpler terms not paying its bills on time, is to look at charts from that era.
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