Stocks Soar Over US Debt Deal But Trouble Looms
Stocks soared on Wall Street as the markets got wind of a deal in Washington.
By the end of the day, the Dow Jones had climbed over 200 points, or 1.4%, the S&P 500 had gained 1.4%, pushing it close to a record high, and the Nasdaq gained 1.2%.
The volatility index, or VIX, which is considered one of the best measures of fear in the markets, experienced its biggest daily drop since August 2011.
Portfolio manager at Evercore Wealth Management Judy Moses described it as a "relief rally", and a welcome "reprieve" from the uncertainty surrounding the debt ceiling row.
But the market's expectation was always that the United States, the issuer of the world's reserve currency, would not default on its debt.
That would be too catastrophic to contemplate.
It would have pushed America into unchartered territory.
Even the most experienced analysts and bankers struggled to predict what might have happened had US government debt, considered one of the word's safest investments, suddenly become risky.
Billionaire businessman Warren Buffet said in a television interview with financial news channel CNBC that a default was "unthinkable", and that the debt ceiling row was a "political weapon of mass destruction".
To a certain extent then, the markets displayed a degree of immunity to the chaos on Capitol Hill.
Senior portfolio manager at US bank Eric Wiegand said: "Investors have become, unfortunately, accustomed to some of the dysfunction.
"It's become more the norm than the exception."
In 2011, when legislators wrangled over the debt limit, markets plunged and ratings agency Standard & Poor's cut America's credit rating.
This time, although volatility was up, Fitch put the US credit rating on negative watch, and treasury debt became less popular, the widely predicted market mayhem failed to materialise, and there was no panic or large-scale sell off.
Some suggest it is good that Wall Street doesn't appear to be so tied to the ups and downs of a bitterly divided political system, but others warn of a lasting negative effect.
Chief market strategist at Ameriprise Financial David Joy said: "To me the market has yet to reflect the economic damage and the psychological damage this has done."