The stock market for the most part has been granting President Biden and congressional leaders a good bit of latitude in working to reach an agreement on raising the debt ceiling. Yesterday, however, was the first indication that the stock market’s patience in that regard is wearing thin.
The major indices all traded lower, digesting press reports that effectively said the two sides still have big differences on spending and that they are nowhere near a deal. That reporting didn’t sit well for two reasons: (1) it came right after President Biden and House Speaker McCarthy labeled their latest meeting as being “productive,” making it appear as if that declaration was just fluff and (2) while a deal may not be near, the potential X-date of June 1 is.
The headline coming in this morning was that the debt ceiling talks have hit an impasse and that no meetings are scheduled for today. Not long ago, however, Bloomberg News reported by tweet that there is a tentative plan for the White House and GOP negotiators to resume talks this morning.
“Tentative” of course does not mean definitely, so we’ll know when we know if those talks do take place.
The uncertainty of the matter — both if talks are going to resume and the timing of when a deal ultimately gets reached — is keeping a lid on the market. To be sure, it is crimping the conviction of buyers even if it isn’t necessarily fueling any panic selling.
The stock market’s baseline view is that a deal will be reached in time to avoid a default, yet that doesn’t mean it is enjoying the process or not allowing itself to envision a worst-case scenario. Accordingly, it is trading with a burgeoning sense of impatience on the matter, which, ironically, might be what negotiators need to get to the finish line before the X-date.
Currently, the S&P 500 futures are down 20 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 82 points and are trading 0.5% below fair value, and the Dow Jones Industrial Average futures are down 120 points and are trading 0.3% below fair value.
The debt ceiling uncertainty is the main hang-up, yet a higher-than-expected CPI print for April out of the UK, the impending release of the FOMC Minutes for the May 2-3 meeting at 2:00 p.m. ET, talk of China grappling with a new wave of COVID cases, weak price action in foreign markets, and some ongoing softness in the mega-cap stocks are also playing a part in keeping the stock market in check.
Some retailers, however, are making a break for it this morning. Kohl’s (KSS), Abercrombie & Fitch (ANF), and Urban Outfitters (URBN) are all up double-digit percentages following better-than-expected earnings results. Palo Alto Networks (PANW) is a standout on the tech side, up 4% after its better-than-expected report.
These moves, though, are only helping on the margin to raise the floor this morning for the stock market, which is seeing the walls close in on the debt ceiling uncertainty.
Originally Posted May 24, 2023 – Debt ceiling drama starting to test market’s patience
(Correction: The original post said the UK CPI report was for May. It was the April CPI report.)
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