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Market Rally 'Totally Misplaced'; Scary February Ahead: Strategist

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The market rally currently taking hold is "totally misplaced" and February's looming debt ceiling could bring a very scary surprise, one strategist told CNBC Thursday.

"This [rally] shows just how low we've sunk in investor expectations when the market rallies just on 'muddling through.' I disagree completely with those that argue that most of the uncertainty has been lifted," Nicholas Spiro, managing director at Spiro Sovereign Strategy, told CNBC's "Worldwide Exchange."

Spiro warned that the looming debt ceiling in late February or early March — when the U.S.government will reach its borrowing limit and another deal will be needed to raise the debt ceiling — could bring a "very scary surprise."

"I believe that the Republicans will fall into line at the eleventh hour as they have already caved over a relatively minor piece, but it will be extremely messy and there should be a lot of volatility expected [before then]," he said.

He admitted that while the U.S. had averted a catastrophic fiscal squeeze, the U.S. had already fallen off a cliff because of its dysfunctional political system.

(Read More: Fiscal Cliff Deal Key Points)

"It's fallen off a political cliff, but it's been tumbling for a while — this is a political system that is knee deep in partisan warfare. [House Speaker John Boehner] has lost control of his troops. Republicans are not showing any willingness to compromise and two thirds oppose this deal," he added.

Spiro said it was only now that investors were coming to grips with the "severity of dysfunction" that characterizes the U.S. political system.

Weeks of fraught negotiations between Democrats and Republicans finally resulted in a deal on Tuesday that averted the fiscal cliff after compromises were reached on tax rises.

Moody's, the credit rating agency, warned that despite the deal a downgrade to the U.S.'s triple-A credit rating could not be ruled out.

By CNBC's Shai Ahmed; Follow her on Twitter @Shaicnbc

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