Talk Is Cheap At Pivotal Crossroads

Articles From:


Chief Market Analyst

President Biden and House Speaker McCarthy reached an agreement yesterday… to keep talking. The agreement on raising the debt ceiling remains elusive, yet the party line from both leaders is that the conversation they had was productive and that they will continue to talk each day.

That is a positive-sounding indication, yet stock market participants are appearing fatigued by all the talk and the absence of the all-important action of raising the debt ceiling with June 1 lurking as a potential X-date when the U.S. might not be able to pay all its bills.

Currently, the S&P 500 futures are down 12 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 60 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 67 points and are trading 0.2% below fair value. 

This softer tone isn’t just about the debt ceiling, however. In fact, it is fair to say, with the S&P 500 near the top of a nine-month trading range and longer-dated Treasury yields backing up, that the market remains pre-disposed to believe a debt ceiling deal will get done, enabling the U.S. to avoid a debt default.

The debt ceiling drama has been a permanent distraction of late, but other components in the fray include the specter of the Fed continuing to raise rates, because inflation remains too high, even as other indications denote a slowing in economic activity.

These elements are part of the mix today.

The 2-yr note yield is up six basis points to 4.40%, leaving it up 34 basis points for the month; meanwhile, the preliminary May manufacturing PMI reading for the eurozone dropped to 44.6 from 45.8 in April (a number below 50.0 is indicative of contraction), and Lowe’s (LOW) followed Home Depot (HD) with disappointing FY24 guidance, noting it has seen lower do-it-yourself discretionary sales.

Another hang-up for the stock market has been the inability of the S&P 500 to forge a close above 4,200 on heavy volume. Actually, it hasn’t even been able thus far to forge a close above 4,200 on light volume.

The 4,200 level has put up some stern resistance since last August, which is why it is a closely-watched level now since the previous failures to close above 4,200 have been followed with periods of increased selling interest.

The debt ceiling uncertainty has created a valid excuse for the lack of conviction around 4,200, yet its importance as a key technical level to watch will ratchet up if, and when, a debt ceiling deal gets done. The presumption then will be that a deal should provide a breakout catalyst. If that breakout doesn’t happen, as envisioned, the market will presumably be at risk of a corrective phase or more vulnerable to selling interest catalyzed by a fear of the Fed and/or an economic slowdown that crimps earnings prospects.

The stock market, therefore, is at a crossroads where talk is cheap and action is pivotal.

Originally Posted May 23, 2023 – Talk is cheap at pivotal crossroads

Leave a Reply

Note that all comments are held for moderation before publishing.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from and is being posted with permission from The views expressed in this material are solely those of the author and/or and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.