Warning: This Major Threat Could Sink The Bull Market

September is nearly in the record books, and as it turned out, a month that began replete with potential headwinds for equities turned out to be a very good one so far for the bulls. The S&P 500 index is up 3.8% month to date, a move that I doubt many thought possible given the uncertainties that loomed as September began.

Some of those uncertainties were over what the Federal Reserve would do regarding its $85-billion-per-month bond-buying program. Well, we all know what happened with the Fed’s September “no taper” surprise, which helped stocks vault to new highs.#-ad_banner-#

Moreover, the uncertainty over who will be the next Fed chairman also got one step closer to being resolved, as former Treasury secretary and current presidential advisor Larry Summers withdrew his name from consideration.

Finally, the potential for a U.S. military strike against Syria stemming from that country’s use of chemical weapons caused a lot of market jitters in the initial week of the month, but those fears quickly dissolved after a deal was reached involving the Russians.

So, with the major headwinds we faced to start September now largely off the table, there’s only one really big exogenous threat out there facing the markets — the politicians in Washington, D.C.

Now, I say that not from a political perspective, but rather from a historical market perspective. You see, over the past three-plus years, there have only been two things that have caused this relentless bull market to hiccup, the European debt crisis and acute episodes of political infighting in Washington.

The chart here, created by my friend and colleague Tom Essaye of The 7:00’s Report, clearly shows the periods where the market has experienced significant pullbacks.

As you can see, of the six major bouts of selling we’ve seen in the S&P 500 since 2010, three have been related to the European debt crisis, and three have been largely the direct result of the uncertainty factor generated by political dysfunction here at home.

The first of those three homegrown sell-offs was caused by the fight over passage of the Affordable Care Act, otherwise known as Obamacare. The next was the wrangling over the lifting of the debt ceiling and the downgrading of the credit outlook for the U.S. for the first time ever.

Most recently, there was the uncertainty over the presidential election, and then the battle over the so-called fiscal cliff, which at the time was slated to be the simultaneous increase in tax rates and reduction in federal spending that was feared to severely crimp U.S. economic growth.

Today, there’s another potentially huge battle brewing in Washington over the defunding of Obamacare, the funding of the government and the need to raise the debt ceiling yet again. And that’s an all-too-familiar cocktail that could intoxicate the markets as we enter October.

According to Essaye, “All of the ingredients are there for another messy, public battle over the debt ceiling and the continuing resolution to fund the federal government.”

If history is any harbinger of things to come, the market could very well see a significant pullback from now until some sort of deal is reached to increase the nation’s credit line, and to keep the federal government from having to, at least temporarily, shut down.

The upside of this situation is that every politically induced market sickness of late also has been a great buying opportunity for bulls looking to put new money to work.

Will that be the case this time around? Will the powers that be in Washington succeed in scaring away investors and subsequently creating a buying opportunity for those with historical perspective?

I know my money is betting that history will once again repeat itself.

This article originally appeared on ProfitableTrading.com:
The Major Threat That Could Derail This Bull Market

P.S. An eccentric Texas woman who dodged the 2008 financial collapse says the market is ripe for a pullback. This is the same analyst who’s produced annual returns of up to 510% and has picked winning investments roughly 85% of the time. To learn how she’s protecting her portfolio today, click here.