With tensions over Syria defused, at least for the moment, calm has returned to the stock market as well as to individuals worried about military engagement and the price of gasoline.
But analysts are warning investors not to become too comfortable. Even before President Barak Obama began talking about a military attack on Syria, analysts were preparing investors for ominous dates on political calendars for both the U.S. and Europe this fall. Independent of geopolitical issues in the Mideast, political decisions later this month and next have the potential of unsettling stock and bond markets.
At issue in the U.S. is the possible replay of the nation's debt ceiling debate. The country once again is approaching the point where Congress must decide if it will lift restrictions on the federal government's level of debt so the nation can pay its bills. The expectation is that the deadline will arrive at the end of October.
In addition, there's the possibility of a partial government shutdown if lawmakers don't extend the nation's authority to spend after the old authority expires Sept. 30.
In 2011, the fight over extending the debt ceiling became so contentious that the stock market plunged as American politicians seemed incapable of making decisions and Standard & Poor's lowered the nation's credit rating. Political paralysis in Washington hit at the same time the eurozone appeared poised for collapse — a nasty combination that shook confidence as businesses and consumers looked for leadership strength amid global financial weakness.
Analysts expect bitter fighting in Washington to erupt again as the debt debate approaches deadlines. Yet, analysts also assume — based on last-minute deals over the nation's debt during the last two years — that ultimately a deal will be forged, the federal government will avoid a shutdown and the nation's debts will be paid without sending a chill through the bond market.
Although the posturing in the debate could cause a stock market downturn temporarily, analysts expect the impact to be short-lived.
Goldman Sachs economist Jan Hatzius said in a recent report to clients that markets might not respond to the debate at first because investors have been "somewhat desensitized" by bickering and last-minute decisions in the past. But close to the deadline, there could be "short-lived volatility" that would end with an agreement.
In the months ahead, the political scene in Europe could have more of a long-term impact on the global economy and markets. There, Italy's leadership is in flux and the kingpin of the eurozone, Germany, faces an election Sept. 22. Since the dark days of 2011 and 2012, optimism about Europe's future has lifted primarily because the head of the European Central Bank, Mario Draghi, promised to do whatever it takes to keep the euro intact. Recently, some economic data has also shown signs that Europe is emerging from recession.
Still, some European banks and Greece, Spain, Portugal and Italy are still in distress. Germany, with a strong economy, has been the key to bailouts up to this point and will be in the future.
The most powerful person in those decisions, German Chancellor Angela Merkel, is up for election. The popular notion has been that once Merkel's election is behind her, she will no longer need to worry about infuriating voters by helping countries on Europe's periphery.
With that freedom she presumably will become more lenient about demanding weak countries adopt austerity measures and will be more generous with bailouts — paving the way for a European recovery.
For example, David Kotok, chairman of Cumberland Advisors, which manages more than $2.3 billion, recently wrote clients: "The European Central Bank (ECB) is destined to be expansive as soon as it gets through the uncertainty occasioned by the German federal election on September 22 and the German Constitutional Court ruling on the ECB's bond-buying program."
That widespread belief, along with some stronger data on Europe's distressed economy, has helped propel the European Stoxx 600 index up almost 11 percent this year.
While most analysts think Merkel is bound to win the election, some claim there are no assurances the troubled parts of Europe will get what they want as 17 nations grapple with unpopular assistance for other countries.
"Germany must lend, give and spend with abandon to save the euro," Lombard Street Research economist Brian Reading said in a recent note. He thinks International Monetary Fund forecasts of the costs and the ability of heavily indebted European countries to grow their way out of trouble are wildly optimistic.
Most analysts, he said, "have lost sight of the debt-trap arithmetic." And without extraordinary help from Germany, he expects the "euro is in a hospice."
While an unexpected loss for Merkel in the election would rattle investors, Europe's longer-term problems will not be immediately apparent.
Citigroup global political economist Tina Fordham said that regardless of the German election this month, "investors should not expect significant changes to Berlin's austerity policy" as public support for national leaders is weak.
"Governance challenges may lie ahead for the eurozone for some years to come," she said.