Last week, investors cheered that Washington managed to eke out a deal at the 11th hour. But despite any headlines to the contrary, the debt ceiling deal wasn’t all good news. Here’s a quick look at the good and bad news and its implications for investors.

The Good News

The Bad News

  • The short-term deal solves nothing. While the deal did temporarily extend the debt ceiling and end the government shutdown, it didn’t solve the country’s long-term issues and the economy is still struggling. The market will face the same issues again in early 2014, at which point not much will have changed.

By most political metrics, such as voting records, both the House and the Senate are more polarized than they have been in at least a century. Given how far apart the two parties are philosophically, the type of short-term deal that was struck last week may become a template for what to expect over the next year, and potentially for the next three, if the political status quo holds after the 2014 mid-term elections.

And while the United States isn’t in danger of a recession, slower growth isn’t consistent with the continuous rise in US valuations. US stocks are now trading at roughly 2.5x book value, a 15% increase from the end of 2012.

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