The debt ceiling controversy and sequestration are two items that may impact the investment markets.
The Debt Ceiling:
As you likely know, Congress decides the maximum amount of debt the Treasury can issue. If (and perhaps when) we hit that ceiling, would Congress allow a situation where the government is forced to default on payments? The short answer is 'no', at least for any significant period of time. While the debt ceiling may be delayed beyond the theoretical deadline, I give high odds that our bills will be paid - somehow. As a result, the controversy will certainly grab headlines but will be resolved favorably, and will therefore have less impact on the markets than the last go around (2011).
For the Budget Control Act of 2011, sequestration was used as a tool to control the federal budget. Specifically, it called for $1.2 trillion of specific spending cuts over nine years, starting in mid-2013. Many politicians today are arguing to renegotiate this - even though this is what they originally agreed to less than two years ago.
Currently, the fate of the upcoming spending cuts has not been decided. Without changes, sequestration amounts to $109 billion per year; and according to the Bipartisan Policy Center, it would shave an approximate 0.5% off of economic growth. Since economists on average see economic growth at approximately 2.3% for 2013 (according the the Wall Street Journal), a recession remains unlikely in the event these automatic spending cuts come to fruition.
However, if this issue heats up, the prospect of losing 1/2 percent of economic growth would likely lead to a pullback. In the end, a market correction would prove temporary and likely opportunistic given the actual economic impact.
How specifically these two issues are resolved is a mystery.
They could easily be combined into one resolution, and further mixed in with other issues. However, the true potential economic impact of these two specific issues appears to be fairly limited. As a result, I expect the debt ceiling controversy and sequestration to be more of a headline risk for 2013 than a serious threat.