Expect Volatility to pick up as debt ceiling impasse continues
The latest news on raising the US debt ceiling is that President Biden and Speaker of the House of Representatives Kevin McCarthy remain optimistic that they are getting close to working out an agreement to raise the debt ceiling, in which they will speak again on Monday as President Biden returns to Washington after his trip to Japan. The two leaders held a phone call on Sunday and both sides were positive on their call. The S&P 500 gained 1.65% last week, reached a high of 4,212.91 points on last Friday but closed slightly down at 4,191.99 points.
Surprisingly, the VIX (Volatility Index) remains under 20, indicating that the markets are still in a neutral region. The VIX was between 25 to 30 in mid March but has dipped to below 20 since then. It is likely that as the debt ceiling impasse plays out, the VIX is likely to rise as the markets get volatile again.
The CNN Fear & Greed Index currently is at 67, compared to a week ago at 59, where greed is still in play.
Expect the show to continue until X-Date June 1st
Both sides will continue to delayIng the agreement, as they perform a show to prove to their supporters that they have negotiated hard. If the stalemate continues, perhaps it's likely possible that Secretary Janet Yellen will find another 2 weeks and extend the X-Date to June 15th.
Until the eventual outcome of coming to an agreement to raise the debt ceiling, expect the markets to rise in volatility. Possible trades are call options on the VIX, or to take short term trades on UVXY, which is the ETF that tracks short term VIX futures.
Other possible ideas are to take profits on stocks that are close to their all time high, such as Apple (ATH $182) and Microsoft (ATH $350). Likely sellers will want to secure profits as traps start to form when stocks reach a recent swing high.
Modify on 2023-05-22 21:30
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If an agreement to raise the debt ceiling is not reached and the president invokes the 14th amendment???? does that not render the speaker of the house irrelevant????
I heard an interesting interview on Bloomberg last week with a Washington economics reporter. She was quite well spoken, and had observed many debt cycles. She thought the debt stand off was political theater; the president and most in congress are responsible and do not want a default, but they have to show their respective bases that they are tough and fighting for (whatever their base wants), so they have to have several rounds. What I found most interesting was that she said she thought it would be a bad thing if they got a deal before Tuesday because that would leave too much time for thinking about it. I hope she's right!
Rest easy - giggles is leading our government's AI Strategy task force. I'd say we'd be better off with Rexy.
Looks like a stink and drink holiday party this week stay tuned for date and time
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