Deutsche Bank chief U.S. equity strategist David Bianco calls it a "high stakes week ahead" for the stock market.
In a note to clients, Bianco says the S&P 500 index is "likely to climb to 1725 or fall again to 1650" as the next stage of the battles in Washington over the budget and the debt ceiling transpires.
The government shutdown resulting from inability in Congress to pass a 2014 budget has already deprived investors and policymakers of government-released economic data reports, so it's hard to get a good look at the latest economic picture at the moment.
Over the next two weeks or so, however, we will see Q3 earnings results from almost all of America's biggest corporations as reporting season hits full swing. And there is concern that the surge in interest rates over the summer may finally start eating into profit margins.
"The likelihood of a deal to lift the debt ceiling and end the shutdown before October 18th has increased, but only for a deal of limited scope and duration," says Bianco. "Such a deal is not the deal investors wished for and it will put the burden on 3Q earnings and macro data to push the S&P to 1750 or higher by year-end."
Bianco thinks the most likely scenario to play out in D.C. is a deal that puts off fiscal negotiations for another six months by Friday, October 18.
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