At first, President Barack Obama said the U.S. should take military action against Syrian government targets for lethal gas attacks last month that killed more than 1,400 people. Then, the president said he would seek congressional approval for a limited strike. Now, a White House official indicates the president has agreed to talks on a U.N. resolution, possibly avoiding any military action. 

While the update has provided the markets with more clarity on the situation -- after all, uncertainty is never a friend to the stock market -- the president’s image on Wall Street may be further dented by his handling of the Syrian situation.

“A big concern on Wall Street is that the president’s second term will become more damaged and this situation could move him into lame duck territory, and we are facing some very big challenges with our economy to have a president who is unable to move an agenda,” says Nicholas Colas, chief market strategist at ConvergEx Group.

Stocks breathed a sigh of relief on Tuesday on the news of a possible diplomatic outcome, with the Dow jumping 85 points and the S&P 500 gaining nearly 8 points. Oil prices tumbled on the reports that putting Syrian chemical weapons under international control  could postpone U.S. strikes.

Getting the votes necessary in the Democrat-controlled Senate to authorize military action proved difficult over the last few days—which could be a bad omen for lawmakers’ ability to reach agreements on the looming budget battles regarding the country’s deficit and funding the government, both issues experts say will impact Wall Street more than the Syrian conflict.

The clock is ticking on Capitol Hill for lawmakers to keep the government funded past Sept. 30, and any distractions could complicate the fiscal debate process.

“Getting the government funded is more important than the issue in Syria, if we don’t get a resolution passed, we could experience some catastrophic financing problems and wild swings on Wall Street,” says Colas. 

Lance Roberts, chief strategist at StreetTalk Advisors, adds that what happens with Syria is much more “incremental” to Wall Street than the debt ceiling debate. “There seems to be no real desire among lawmakers to roll over and play dead and go along with the president, and this could lead to a lot of angst among investors on Wall Street.”

The debt-ceiling wrangling on Capitol Hill at the start of the year sent Wall Street reeling. Not to mention the August 2011 debate that led to the country losing its top credit rating from Standard & Poor’s and a massive stock market selloff.

Roberts predicts similar reactions if Congress isn’t able to come to an agreement this time around. “The fallback for this president every time he doesn’t get his way is to play the ‘if we default, we will die’ card and it scares the crap out of the markets.”

Charles Rotblut, vice president for the American Association of Individual Investors , says avoiding military action will be welcome on Wall Street.

“Most investors -- both on the retail and institutional level -- don’t want to see involvement or they want to make sure that they have a clear sense that any action will be clearly thought out, limited and strategic in nature. Given what is going on right now, I do think most investors want the president to show a willingness to go along with Russia's proposal.”

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