Moody's analysts called the likelihood of a US debt default “devastating,” but markets show no indications of fear. Banks seek out the urgent necessity to boost loan restrictions; else, global financial instability would result. In reality, we can expect a shock wave to hit equities and other asset classes as a result of broken consumer confidence and maybe a labor market downturn. However, such is not the case with the market attitude this week. Markets seem to be looking forward to earnings season, ignoring the major implications of exceeding a debt limit.
In her most recent statements, Treasury Secretary Janet Yellen said that they would take extreme efforts to avoid irreparable damage. So, although markets remain quiet in expectation of a vote in Congress to raise the debt limit, Republicans are prolonging the process by demanding budget cutbacks. This week's highlight capitalizes on earnings releases.
Several contradictory price movements have caused us to question how close we are to a dangerous recession as investors remain bullish on several assets, such as caterpillar, a global benchmark for the world's largest manufacturer of construction equipment that tracks growth, which appears stable enough despite looming recession fears.
Much of this is tied to the World Bank recently lowering global growth, as World Bank President David Malpass warns that the global economy is unlikely to experience a substantial rebound in 2023 and 2024, citing chronic inflation. It is also said that investors are just now completing projects that were financed months ago.
Looking at international benchmarks, important indexes that represent the world economy, such as the Dow Jones, S&P500, and Nasdaq, although experiencing a negative market in 2022, seem to be on the solid ground currently, creating a sideways trend after moving in an ascending channel beginning in October 2022. The Dow Jones, which represents the 30 most famous US firms, stays steady around $33,000 and may breach this level if central banks slow the pace of rate rises.
While earnings season is clearly the main focus right now, not the global economy slipping into recession and seeing unfathomable (also according to Moody's) consequences of approaching the debt limit, perhaps leading to a credit, liquidity, and market catastrophe. The frosting on the cake is that key indexes are potentially conducting a rally, as the S&P approaches $3,980. And, given current market fundamentals, especially the labor situation, the S&P could easily break $4,200 again.
Especially after falling back to $3,800 levels last week.
For the Nasdaq, tech results will be a big trigger in the Mega-cap index's performance, which is now in a sideways trend of about $11,650, with a break over $11,700 possibly taking us back towards $12,000. What's confusing is that market predictions for 2023 were questioning a bottom, but the risk of an economic downturn hasn't had the massive impact on equities that was factored in. Being in flight mode casually. The key concern this week is whether markets will remain resilient if results are more dismal than expected.
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