What debt crisis? Rally could keep going

Both the S&P and Dow have been on a tear in 2013.

NEW YORK (CNNMoney)

Answer: Probably nothing -- at least not for the next few months

"The amazing part of this whole situation was that investors were not going to let this rally go away," said Quincy Krosby, chief market strategist at Prudential. She noted that few investors were willing to take big bets against the market through short positions (i.e. investments that pay off when stocks fall) during the past month.

The Dow gained more than 1% since the government shutdown kicked off on October 1st. The index is now up 17% for the year and is hovering around its all-time highs. The broader S&P 500 is up nearly 21% in 2013 and is just a few points below last month's record high.

Related: JPM's Mary Erdoes: 'The really smart people will just buy stocks'

Wednesday night's debt deal will only give the U.S. a temporary reprieve from the drama that has consumed Washington for the past several weeks.

Still, analysts think investors will be happy to continue ignoring Washington for the next few months. Krosby said the market now has two rallying cries for the rest of the year: Don't fight the Fed. Don't fight the fourth quarter.

Stocks have rallied since the Federal Reserve announced it would not cut back, or taper, its bond buying program. And few expect the Fed to taper before the end of the year because of the uncertainty created by the government shutdown and flirtation with a bond default.

Related: Warren Buffett: Get the debt ceiling out of the picture

As for the fourth quarter, Krosby said it's typically one of the best times for stocks during any year. The market often rallies in November and December. This year, she expects stocks to do even better simply because hedge funds and mutual funds that have trailed the market will be forced to put money to work to catch up to the broader indexes.

Bruce McCain, chief investment strategist at Key Private Bank, also thinks stock will keep climbing. He doesn't believe they will continue to rise as quickly as they have for most of 2013. But he believes investors have already forgotten the debt scare.

"There's not a lot out there that seems likely to disrupt positive sentiment," McCain said.

First Published: October 17, 2013: 9:41 AM ET

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China not impressed by U.S. debt deal

The Congressional vote to avoid a debt default did not win positive reviews from China.

NEW YORK (CNNMoney)

"[P]oliticians in Washington have done nothing substantial but postponing once again the final bankruptcy of global confidence in the U.S. financial system," government-run Chinese news agency Xinhau Thursday.

Wednesday's vote, the commentary said, "was no more than prolonging the fuse of the U.S. debt bomb one inch longer."

And a Chinese credit rating agency Dagong downgraded the United States, saying the deal did little to change the outlook for the country's financial condition.

It lowered its view of the U.S. debt rating from A to A- and kept it on negative credit outlook, which means further downgrades are possible.

"The government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future," the firm wrote in a note.

The firm's ratings are not widely followed outside of China, which owned $1.3 trillion in Treasuries as of July. That's almost a quarter of debt held overseas.

The criticism of the U.S. debt and political crisis by China has been building for some time.

A week ago Chinese Vice Finance Minister Zhu Guangyao said that a solution had to be found quickly to "ensure the safety of Chinese investments" and provide stability for economies around the globe.

And another commentary from Xinhau earlier this week said the "pernicious impasse" in Washington warrants a move to a "de-Americanized world."

First Published: October 17, 2013: 9:42 AM ET

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Dow dragged down by IBM and Goldman

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NEW YORK (CNNMoney)

The Dow Jones industrial average fell nearly 100 points, or 0.6%, in early trading, dragged down by shares of IBM (IBM, Fortune 500)and Goldman Sachs (GS, Fortune 500). Both stocks were pummeled following quarterly reports that disappointed investors. UnitedHealth (UNH, Fortune 500), another Dow component, was also down due to a tepid forecast.

IBM and Goldman are the second and third highest weighted components in the Dow, which is weighted by stock price as opposed to market value like the S&P 500. UnitedHealth has the seventh biggest weighting. This means moves in these higher-priced stocks have an outsized impact on the Dow.

Losses in the broader market were more modest. The S&P 500 and the Nasdaq were both down about 0.2%.

Stocks surged more than 1% Wednesday following news that Congress had reached a deal to reopen the federal government and avert a potentially catastrophic default. But the initial euphoria faded around the world Thursday and investors were beginning to wonder what happens when the government bumps up against the debt ceiling again in February.

The dollar was weaker against other major world currencies, sinking as much as 0.7% against the euro and the pound. European stocks were lower in mid-afternoon trading while Asian markets finished mixed.

Related: Investors still gripped by fear

China, the United States' biggest foreign creditor, welcomed the resolution of the debt ceiling crisis. But credit rating agency Dagong, which has close ties to the Chinese government, cut its rating on U.S. debt, saying the country was only able to remain solvent by raising new debts.

Investors were also concerned about the economic toll of the impasse, which shut down large parts of the government for 16 days. The shutdown comes with a $24 billion price tag, according to Standard & Poor's.

About 70,000 federal workers filed for unemployment benefits during the first week of October, the Labor Department reported Thursday. The shutdown, which started Oct. 1, put thousands of federal employees temporarily out of work and without a paycheck.

Related: What did GOP win on Obamacare? Not much

In corporate news, IBM shares sank 6% after the tech giant reported quarterly sales that fell well short of expectations. Shares of eBay (EBAY, Fortune 500) fell 5% after the company offered weak guidance.

Shares of Goldman Sachs fell after the firm reported a year-over-year revenue decline. At the same time, Goldman's earnings per share topped forecasts and the company hiked its dividend by a nickel to 55 cents. UnitedHealth was down nearly 4% following its results.

Dow component Verizon (VZ, Fortune 500) jumped after the company reported a double-digit profit increase for the quarter thanks to strong gains in wireless subscribers.

Google (GOOG, Fortune 500) is set to report its latest quarterly results following the closing bell.

First Published: October 17, 2013: 9:54 AM ET

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Downgrades: 6 things you need to know

The United States lost its AAA rating in 2011 and is at risk of getting dinged again.

NEW YORK (CNNMoney)

Yes, we've seen this movie before.

In 2011, the last time Washington waited until the last minute to raise the debt ceiling, Standard & Poor's removed the United States' sterling AAA credit rating. This time around it's Fitch that has put the country on notice.

Stock investors did not react well to the last downgrade. When markets opened, all three major U.S. stock indexes lost between 5% and 7% -- the worst single day since the 2008 financial crisis.

Another downgrade in the days to come would surely grab headlines, but what are the implications?

Here's a primer on the rating agencies and their relationship to the chaotic events on Capitol Hill.

What do rating agencies do? The big three rating agencies -- Fitch, Standard & Poor's and Moody's -- rate debt based on the likelihood that it will be repaid. They rate everything from obscure derivatives to government bonds, with the safest bets labeled AAA. Some firms use their ratings as guidelines when making investment decisions.

What are the U.S. ratings? U.S. debt had been rated AAA by all three agencies for as long anyone can remember. Moody's, for example, first assigned the United States a AAA rating in 1917.

Right now, Fitch and Moody's have a AAA rating on U.S. debt. The country's S&P rating is AA+ -- still strong, but not the highest. It's on par with that of France, but below countries like the United Kingdom and Australia.

Why is another downgrade possible? Fitch said Tuesday that it had put the United States on review for a possible downgrade, saying the "political brinkmanship" on display in Washington increases the risk of the U.S. defaulting on its debts.

The country is now on "rating watch negative," meaning that there is increased possibility of a downgrade in the near future.

Related: Who owns U.S. debt?

Fitch took this action even while saying it expects a deal will be struck to raise the debt ceiling and avoid default.

But if they're wrong, look out. All three agencies would surely issue new downgrades if a debt payment is missed.

What do they mean by "default?" In this case, what technically constitutes default is a little murky.

The rating agencies look specifically at debt issued by the Treasury Department -- they don't care about other government obligations, like Social Security and Medicare payments.

Related story: 6 ways a default could hurt the world

Moody's has said that even if lawmakers fail to raise the debt ceiling by Thursday's deadline, the United States would likely be able to preserve its credit rating -- not to mention the stability of world financial markets -- by prioritizing interest payments on its debt over other obligations.

But others, including the Treasury Department itself, say this solution is unworkable.

What happens if we get downgraded again? Probably not too much. Back in 2011, some analysts feared the S&P downgrade could cause U.S. borrowing costs to soar. That didn't happen.

True, world markets lurched in the days following the downgrade, but rather than making borrowing more difficult, Treasury yields actually fell. More than two years later, the move appears to have had little lasting effect.

Why should anyone care what the rating agencies say? Analysts say the rating agencies no longer have they influence they once did on investors. Their critics say they lost credibility for their role in the housing crash, having stoking the bubble by blessing securities that contained bad-risk mortgages.

The rating agencies also face a particularly tough task when trying to quantify political risk -- a factor that is paramount when gauging the probability of a U.S. default.

The fiscal and political situation in Washington is well known, and the agencies are not basing their rating on any information that is not already available.

This suggests that investors may be better served by conducting their own analysis, and not relying on the credit rating agencies for insight.

First Published: October 16, 2013: 8:35 AM ET

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Stocks rise even as default deadline nears

Click for more market data.

NEW YORK (CNNMoney)

U.S. stocks were all about 1% higher early Wednesday, with the Dow Jones industrial average, the S&P 500 and Nasdaq all recovering after Tuesday's sharp drop.

The gains come as investors wait to see if lawmakers will reach an agreement before Thursday's debt ceiling deadline. A failure to reach an agreement could trigger a default on U.S. debt and chaos in global markets. Some analysts have downplayed the Thursday deadline though, saying the Treasury Department has enough cash on hand to pay most of its obligations until the end of the month.

Still, yields on short-term Treasury bills have been rising lately as investors worry about the possibility that the U.S. may not be able to pay all its bills. The U.S. auctions one-month T-bills and one-year notes later Wednesday. and investors will be keeping an eye on those results. Demand was lackluster for bonds sold on Tuesday.

At the same time, gold prices are edging up as investors seek a safe-haven asset.

Rating agency Fitch put the U.S. on notice Tuesday afternoon, warning it could soon downgrade America's credit rating because of the "political brinkmanship" on display in Washington.

U.S. stocks plunged after Standard & Poor's cut the nation's credit rating in 2011, although Treasuries rallied in a somewhat ironic flight to safety. At the time, S&P blamed the political wrangling around the last debt ceiling increase.

While most investors are still betting on a last-minute deal, few expect lawmakers to agree on a policy that addresses the nation's long-term debt problems.

"People are confident that it's going to get done, but they will probably just kick the can down the road," said Bernard Kavanagh, vice president of portfolio management at Stifel Nicolaus. That means politics will continue to weigh on the market for some time, he added.

One potential bright spot? The continued dysfunction in Washington means the Federal Reserve is unlikely to cut back on, or taper, its bond-buying program anytime soon.

"With more uncertainty and the potential for the government shutdown to drag on the economy, the last thing the Fed wants to do is begin to taper," said Kavanagh. "That should give market a bit of a tailwind."

Related: Fear & Greed Index still shows fear

There were also plenty of earnings results to parse through Wednesday.

Shares of Bank of America (BAC, Fortune 500) gained after the financial giant reported better-than-expected third quarter results.

Mattel (MAT, Fortune 500) shares jumped after the Barbie and American Girl manufacturer reported quarterly revenue and profits that beat analysts' estimates.

Stanley Black & Decker (SWJ) tumbled roughly 10% after the power tools maker lowered its full-year earnings outlook. The company said it expected "uncertainty created by the U.S. government's sequestration and shutdown" to hurt business and consumer spending.

Meanwhile, shares in BlackRock (BLK, Fortune 500) and PepsiCo (PEP, Fortune 500) inched higher after both firms released quarterly results that topped forecasts. American Express (AXP, Fortune 500), IBM (IBM, Fortune 500) and eBay (EBAY, Fortune 500) are set to report after-hours.

Related: 6 ways a U.S. default could hurt the world

After the bell Tuesday, Twitter announced plans to list on the New York Stock Exchange.

Intel (INTC, Fortune 500) shares slipped after the chipmaker issued a pessimistic outlook for the rest of 2013 and lowered its profit forecast late Tuesday. But shares of Yahoo (YHOO, Fortune 500) rose following its earnings report.

European markets were under pressure as investors around the world fret about the political mess in Washington. Asian markets ended mixed.

First Published: October 16, 2013: 9:46 AM ET

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JPMorgan to pay fresh $100M London Whale fine

LONDON (CNNMoney)

The bank will pay $100 million to the U.S. Commodity Futures Trading Commission, conceding "reckless" behavior led to the trading debacle that generated about $6 billion in losses.

Former London-based JPMorgan (JPM, Fortune 500) trader Bruno Iksil, whose team is thought to be responsible for the complex derivatives bet, was nicknamed the "London Whale" due to the massive trading position.

The CFTC said in a statement Wednesday that by selling a staggering volume of these swaps in a concentrated period, the bank "recklessly disregarded the fundamental precept on which market participants rely, that prices are established based on legitimate forces of supply and demand."

It's the latest in a series of financial blows to hit the bank. The most recent penalty relates to trading behavior, while earlier fines have punished JPMorgan for failing to maintain proper governance practices.

Last month, the investment bank agreed to pay about $920 million in penalties to U.S. and U.K. regulators to settle charges over the London Whale trades.

Through those fines, the bank acknowledged that it violated banking rules by not properly overseeing its trading operations. In legal language, regulators said that the bank engaged in "unsafe and unsound practices."

Related: JPMorgan fined $920 million for London Whale trading loss

The bank is also wrestling with authorities over a possible settlement of government investigations related to mortgage-backed securities.

Chief executive Jamie Dimon met with Attorney General Eric Holder in Washington last month to discuss a potential deal thought to be valued $11 billion.

Mortgage-backed securities became a key cause of the financial crisis when they failed in droves as the housing market collapsed.

JPMorgan is one of several large lenders that have faced lawsuits for allegedly selling securities backed by risky, low-quality mortgages while misrepresenting them as safe investments.

Related: JPMorgan's Dimon meets with Holder for settlement talks

All these legal woes are hurting earnings. The bank's sky-high legal costs led to a loss of $400 million during the third quarter, the first loss since Jamie Dimon took over as CEO in 2004.

First Published: October 16, 2013: 11:02 AM ET

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Citigroup's weak earnings disappoint

Citigroup is the third major bank to report and the third to report a hit from the slowdown in mortgage lending.

NEW YORK (CNNMoney)

Shares of Citigroup (C, Fortune 500) fell more than 1% in early trading. JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) both dipped slightly on Friday after reporting results that failed to excite Wall Street.

Despite the earnings miss, Citigroup CEO Michael Corbat said in a press release that the bank "performed relatively well in this challenging, uneven macro environment." Corbat touted the company's cost cutting, but the quarterly results show that Citigroup is having trouble trimming costs quickly enough to compensate for declining sales.

Related: JPMorgan posts loss on big legal costs, but ...

Citigroup's revenues dropped 5% from the same period a year ago, while its expenses were down 4%.

Revenue and profits at Citigroup's consumer banking franchises and its trading and investment banking units fell in the third quarter.

The rising interest rate hit: The spike in interest rates over the summer caused a slowdown in new mortgages and refinancings, as well as bond trading.

Citigroup noted that it took a big hit from the slump in mortgage lending. In North America, mortgage lending declined by 20% from last year.

The bank's bond trading unit reported a 26% drop in third quarter revenues compared to last year.

Citigroup is often deemed the world's financial supermarket because it caters to consumers and investors in all corners of the world. In the third quarter, that global footprint hit earnings, as revenues and profits in its consumer banking operations plunged in most corners of the world.

Chief financial officer John Gerspach noted the "high level of volatility in emerging markets" during the third quarter in a conference call with reporters. He said those regions took an outsized hit from worries over whether the Federal Reserve might cut back its bond buying program. The Fed wound up holding off on so-called tapering for now. But the damage was already done in markets like India, Brazil and Indonesia.

Related: JPMorgan: We're prepared for $23 billion in legal bills

Citigroup continues to shrink the size of its so-called bad bank "Citi Holdings" -- which owns toxic assets from before the 2008 credit meltdown. During the third quarter, Citi Holdings' assets declined 29% from the prior year. But with $122 billion in assets remaining in the unit, it will take more time to completely exorcise Citi's financial crisis demons.

The key third quarter numbers: Citigroup reported $1.02 per share in third quarter earnings on $18.2 billion in revenues. Analysts were forecasting a profit of $1.04 per share on $18.74 billion in revenues.

Although the stock was set to fall on Tuesday, Citigroup's shares are still up 25% this year. Big bank stocks in general have been helping to lead the market higher.

And we're now about halfway through third quarter earnings season for big banks. The remaining three Wall Street giants -- Bank of America (BAC, Fortune 500), Goldman Sachs (GSABX) and Morgan Stanley (MS, Fortune 500) are due to report results later this week.

First Published: October 15, 2013: 8:34 AM ET

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