WHAT THE DEBT DEAL MEANS TO YOU.

Investors: It sure seems a plus for global stock markets, as Asian stock markets and U.S stock futures rose after the deal was announced. It is difficult to see why .Though the U.S stock market isn’t a barometer on the U.S economy anymore. The typical member of the S&P500 already gets about half of its revenues (and almost all its growth) from overseas. It’s a truism that equity market hate uncertainty. And the quick positive reaction is the latest example of the risk-on/risk-off trade. When bad things happen or investors think bad things are going to happen, they sell stocks. When anxiety fades, they buy stocks. That’s what is happening now.
Bond market: It does and the action of the U.S bond markets has been odd in recent weeks. As the U.S move toward a debt crisis, people and institutions around the world continued to buy U.S government bonds, pushing interest rates down further. In fact, last Friday, the 10-year bond closed at 2.8 per cent. Investors never really believe that the U.S will not pay it’s debt. They did believe that large budget cuts would slow growth in an economy whose rate of growth is already slowing . And that tends to put interest rates down. So bonds may fall as investors embrace risk again. But over the long term, this deal in and of itself, is likely to act as downward pressure on rates.
Slower growth and negative factor for stocks
While the deal takes uncertainty over debt payments off the table, it does contribute to other type of uncertainty for stocks in general and certain classes of stocks. For example, the deals calls for real cuts in defense spending (with the prospects of much more), which would be negative for large defense contracting/aerospace complex. And as a general rule, actions that reduce domestic demand (as across the board budget cut would) are a negative for companies that derive a disproportionate share of their revenues from the U.S.