Week Ahead: Stocks Navigate Threat Of Government Shutdown & Default

The Standard & Poor's 500 shares index is up more than 20% this year, but over the next week stock markets will have to navigate the twin threats of a possible U.S. government shutdown and debt default and digest a slew of economic indicators and big company news.

Another surreal week in Washington will see the clock ticking to reach budget and debt deals and avoid shutdown and default

Most analysts consider the threats of a government shutdown and debt default to be remote, but the fact they are once again a technical possibility could be viewed as potentially troublesome for stocks, at least in the short term.

However remote, the prospect of a government shutdown or a default on the federal debt is reminiscent of 2011 when a similar stand-off in Washington led eventually to the United States losing its AAA credit rating and helped prompt a stock market correction.

Both the S&P 500 and the Dow Jones Industrial Average touched all-time highs on September 18, and U.S. stocks have recovered the trillions of dollars in market value they lost in the financial crisis of 2008, so many investors will watch the posturing over potential shutdown and default in Washington with concern.

Having eventually regained their stock market wealth and put retirement plans back on track, Americans do not like to see both threatened by juvenile political show boating.

Investors hope the U.S. Senate will vote this coming week on a temporary budget to keep the federal government operating from October 1 through December 15.

If the politicians don't agree on a budget deal in the next few days, there is a risk, however small, of a federal government shutdown starting October 1. The politicians must also vote by the middle of October to raise the federal debt ceiling in order to prevent a default.

Analysts expect ugly compromises as usual and last-minute deals to avoid a shutdown and default, but the dangerous brinkmanship reflects poorly on the politicians involved and makes markets nervous.

Companies reporting earnings will include home builders Lenar and KB Homes on Tuesday, Bed Bath & Beyond on Wednesday and Nike on Thursday.

On Monday, Goldman Sachs, Visa and Nike are due to replace Bank of America, Hewlett-Packard and Alcoa in the Dow Jones index of 30 major stocks.

Also on Monday, Microsoft is expected to reveal its two new Surface tablet products.

There will be U.S. data for consumer confidence and home prices on Tuesday, updates on durable goods orders and new home sales on Wednesday, news on Gross Domestic Product, initial jobless claims and U.S. pending home sales on Thursday, and personal spending and more consumer confidence data on Friday.

In Europe and Asia, a mountain of economic indicators will be published throughout the week.

Bed Bath & Beyond is among the companies reporting earnings this coming week

A number of U.S. Federal Reserve regional presidents will make speeches in the coming week, amid conflicting and confusing signals from Fed sources on when it might start to reduce its $85 billion a month bond-buying stimulus measures.