Wall St The Week Ahead: US stocks may suffer from fiscal fighting

INVESTORS may be tempted to shy away from stocks in the next week or two as the latest version of the fiscal follies plays out in Washington.

It's understandable. The prospect of a government shutdown or, worse, default on the federal debt, rekindles memories of 2011 when Washington's infighting prompted the loss of the United States' "Triple-A" credit rating and was a primary driver behind the stock market's last full-on correction.

The sense from Wall Street analysts this time, however, is that the current drama is likely to feature more bluster than bravado and contains overblown threats.

"Looking back at the pattern that has emerged since the debt ceiling fiasco back in 2011, the Republican leadership got the message that if there is a government shutdown, most likely their party is going to get blamed," said Brian Jacobsen, of Wells Fargo Funds Management in Wisconsin. "They're going to be very sensitive to that public sentiment as we get closer to a midterm election year" in 2014, he said.

This week on Wall Street, the Dow Jones industrial average will open with three new components as Goldman Sachs, Visa and Nike replace Bank of America, Hewlett Packard and Alcoa.

Even though the market faces a low chance of disruption from the fiscal fighting, there might still be a bearish signal from Washington.

"Fiscal retrenchment" in Washington was one of the reasons cited this week by the Federal Reserve for not reducing its stimulus programme of $85bn a month in bond purchases.