The debt ceiling is dominating today’s headlines. House Speak McCarthy has gone on record saying that the limit on the government’s borrowing must be raised this week to avert a default.
This is not the only ceiling that is preoccupying the markets. There are many headlines discussing the 4,200 ceiling on the S & P 500.
In the short term, markets are about waves of psychology and confidence where certain landmarks become self-fulling prophecies. Yes, the S & P 500 has been higher than this level but not since August 2022. It has broached this level several times since but has not closed above this psychological barrier.
A number is only a number therefore the level 4,200 should not matter but today’s trading is dominated by technology-based algorithms [90% of volume as per the SEC] where headlines and momentum are a primary determinant, a number thus becomes perhaps even more significant.
Many are spooked by the near narrowness of 2023’s rally. It is not unusual for a few big stocks to dominate at any one time, but the 2023’s growth of FAANG is truly phenomenal. Bloomberg writes the largest ten S & P 500 stocks are up 24.5% YTD. The five largest stocks have gained an average 39.4% YTD.
Breakouts or breakdowns can have a big impact on market psychology. If several of the mega sized companies struggle volatility may greatly increase given their total domination of 2023 market performance.
Commenting on yesterday’s market activity, equities and short dated Treasuries fell as negotiations over the debt ceiling remained at an impasse. How ugly will it get before a compromise is reached?
Almost all are complacent a compromise will be reached thus suggesting if an impasse does remain, the possible outcome might be accentuated, defined as the decline may be considerably more severe than it might otherwise have been.
The Minutes of the recent Fed meeting are released today. Will the release be overshadowed by the current debate?
Last night the foreign markets were down. London was down 1.82%, Paris down 1.86% and Frankfurt down 1.72%. China was down 1.28%, Japan down 0.89% and Hang Seng down 1.62%. Futures are down about 0.25% as angst is beginning to build about the debt ceiling. Oil is up another 2% as Saudi Arabia warns speculators not to short oil, perhaps a precursor to another unexpected production cut. The 10-year is up 3/32 to yield 3.69%.