The chaos experienced in the US congress since the 2022 mid-term elections is proving to be a boon for investors.
It took the Republicans 15 rounds of voting to elect Speaker of the House Kevin McCarthy. The last time this happened was exactly 100 years ago in 1923. While the Republicans do hold a small majority in the House, it was elements of the extreme right in the party that tried to force concessions from McCarthy to get their vote.
The elections have led to a split congress, with the Democrats holding onto the Senate and the Republicans holding the house. This means that legislation can only be passed if it has support from both sides of the aisle.
The first major challenge came up on 19 January 2023 when the Federal Government reached its Debt Ceiling – the point at which the government is no longer permitted to borrow money to pay its bills. Currently the US Government owes a total of $31 trillion, and 15% of the Federal Government’s spending is on interest payments alone.
Now that this Debt Ceiling has been reached the US treasury has to use extraordinary measures to keep government running while congress debates increasing the Debt Ceiling to allow for further spending.
With a split congress, and a small majority for the Republicans in the House, this represents some challenges. The Republicans have already indicated that they want deep cuts in federal spending before they’ll pass any legislation to extend the debt ceiling, and not coming to a resolution soon could result in a government shut down – the point where the Treasury is unable to pay its bills.
What are the Implications for Investors?
Investors should be aware that this instability could lead to further market volatility and a decline in stock prices as investors become increasingly uncertain about whether or not to invest in the US economy.
The inability of Congress to reach agreements on fiscal policy will have a direct impact on economic growth in the United States. This leads to uncertainty among investors about when the government will take action, or if it will take action at all. This uncertainty will result in volatility in global financial markets, which in the past has led to lower returns for investors who have been forced to stay put rather than seek out new opportunities that might present themselves elsewhere around the world.
It’s not all bad news
“It’s not all bad news for investors and traders,” says Jack Edwards, Marketing Manager of CAPEX.com in South Africa. CAPEX.com is a fully online brokerage platform for investors, operating in forex, contracts-for-difference, indices, bonds, and commodities.
“Volatile Markets can present traders with ample opportunities,” continues Edwards. “Unlike simple share-holding, trading allows you to make a profit when shares go down as well as up but also exposes you to risk”.
Shareholding is when an investor buys shares to hold and sell at a future point when the price has increased, giving them a profit. This is usually a longer term process, mostly five years or more.
The chaos in the US congress and the negotiations for a future debt ceiling will create uncertainty in global economies. That uncertainty leads to volatility. Volatility leads to opportunity but at the same time trading on volatile markets comes with high risk of capital loss. Therefore investors should not risk more than what they can afford to lose.
“If people are interested in looking at how CFDs work and how to get started, they’re welcome to join our free Training Academy,” says Edwards.
To access the CAPEX.com Academy, visit capex.com/za and open a free account.
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About CAPEX.com
CAPEX.com is a leading global trading platform providing its users with expert insights, tools, and resources to make markets accessible to a worldwide audience and offering a tailor-made trading experience. Its professional trading platforms, robust technological infrastructure, and transparent trading conditions have propelled it as one of the most respectable brokers on the international stage.
Anchored by a global presence and regional expertise, CAPEX.com holds operating licenses from the South African Financial Sector Conduct Authority (FSCA), Cyprus Securities and Exchange Commission (CySEC), Abu Dhabi Global Market Financial Services Regulatory Authority (ADGM), the Financial Services Authority (FSA) in Seychelles.
CAPEX.COM/ZA is operated under license in South Africa by JME Financial Services (Pty) Ltd, an authorised Financial Services Provider and regulated by the FSCA (License no. 37166).
Visit www.capex.com/za for more details.
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Alan Straton
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