The S&P 500 has been parked in a trading range around 4,100 for six weeks now. The Cboe Validity (VIX) is stuck at 17 except on the days that the shorts make a run at the west coast banking stocks. The 10-year U.S. Treasury yield has wiggled between 3.3% and 3.6% for two months now. It would be easy to say that summer doldrums have started early, and investors have checked out, but that wouldn't explain everything. Some analysts think the market may move into a growth area given cash balances and money market funds available. But given the volatility over the past year, we are looking for some added certainty before heading the BUY button.
Right now the market is waiting for the passage of the debt ceiling agreement between speaker of the House Mr. McCarthy and President Biden.. While those to the far left or right are complaining that the agreement either goes too far or not far enough, the agreement is expected to be passed by the time you read this. With the passage of Budget agreement, the markets should calm down and the debt ceiling issue will be put on hold till 2025 after the presidential election.
Climbing the wall of worries – Investors worry list is more bank failure, which is somewhat alleviated by the government moving in with a plan to refill the FDIC's coffers, and the growing list of capital moving to buy banking assets, the days of banking shorts resuming, and the debt ceiling days may be numbered. The Fed's quarterly Senior Loan Opinion Survey showed some tightening last week, it was not as bad as many feared. Yes, conditions are getting tighter. As weekly data from the American Association of Individual Investors (AAII) shows bullish sentiment is below long-term averages however, the credit markets have reopened for business, but the price tags on borrowings are higher.
After these two items, the investor list returns to the Fed, inflation, economic growth, earnings growth, credit risk, and so on. Last week gave us some good data on the CPI & PPI showing slowing inflation. Earnings continued at a better-than-expected pace which has now led to analysts raising estimates for the back half of. 2023. Company bankruptcies are on the rise, but consumer credit trends for April came in better than March. Google also reminded us last week that it is not playing for second place in the AI wars and this new tech adoption is going to add significant value to all end users.
Coming are retail earnings and sales reports, plus, industrial production, housing from the Philadelphia Federal Reserved. Also, J. Powell and Ben Bernanke spoke together last Friday and shed some ideas on expected economic growth and interest rates. Still the expectation is up in the air whether or not the Fed will raise interest rates another quarter point or sit on hold until more data is available. Have a great week.
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