President Joe Biden is set to deliver his State Of The Union Address on Tuesday at 9 p.m., facing a gridlocked Congress that has a fragmented GOP and a Democratic Party with limited wiggle room.

A Debt Ceiling Deal, Hot On Biden's To-Do List

The president is expected to spend a significant portion of his speech on an issue that's become hot around Washington these days: the struggle between Democrats and Republicans to agree on a new debt ceiling.

The debt limit is the total amount of money that the government is allowed to borrow to meet its obligations, all the way from making social security payments to military salaries, interest on the national debt and tax refunds.

According to the non-partisan Committee for a Responsible Federal Budget, the current debt ceiling of $31.381 trillion ran out on Jan. 19 and the Treasury Department can only avoid default until June by using a set of tools called "extraordinary measures," according to Treasury Secretary Janet Yellen.

Failing to agree on a new debt ceiling and defaulting on its obligations would likely lead the U.S. economy into a disastrous recession, carrying the rest of the world along into a global financial crisis. This universal necessity to agree on a new limit has often been used by both parties as a leverage for negotiating their own goals.

The parties are now at a standstill, with the GOP claiming concessions like reduced spending and President Biden stating that he won't negotiate any spending cuts into a new debt ceiling deal.

House Speaker Kevin McCarthy and Biden met with this topic in mind but have so far failed to reach a consensus.

How Do Markets Normally React To The Speech?

Last week, a Bloomberg report pointed out the S&P 500 had gained almost the same percentage points between Biden's election and his second State Of The Union Address than in the same period of Trump's presidency, even in spite of the bear market of 2022.

So far, the markets have responded positively to Biden's past State Of The Union addresses.

Following his 2022 speech, the Dow Jones Industrial Average increased 1.79% and the S&P 500 jumped 1.86%. After his inaugural 2021 State Of The Union, the Dow jumped 0.70% while the S&P 500 raised 0.67%.

The Dow performed positively three out of four times after Trump addressed Congress in his own State Of The Union speeches. The index jumped 1.68% in 2020, dropped 0.08% in 2019, and jumped 0.28% and 1.46% in 2018 and 2017, respectively.

Yet looking at historical data published by Market Watch, between 1961 and 2020 the daily performance of the Dow Jones Average on the day after the State Of The Union speech was varied and did not throw out any significant pattern that can be used to predict future behavior.

Post-speech performance of the Dow averaged a meager increase of 0.03% for the past 60 years.