{"id":10431,"date":"2023-05-18T11:25:22","date_gmt":"2023-05-18T15:25:22","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/debt-ceiling-is-a-buy-the-rumor-but-sell-the-news-event-cautions-this-strategist\/"},"modified":"2023-05-18T11:25:23","modified_gmt":"2023-05-18T15:25:23","slug":"debt-ceiling-is-a-buy-the-rumor-but-sell-the-news-event-cautions-this-strategist","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=10431","title":{"rendered":"Debt ceiling is a buy-the-rumor-but-sell-the-news event, cautions this strategist"},"content":{"rendered":"

Stock markets may have woken from a slumber thanks to debt-ceiling hopes, which sparked a Wednesday rally for Wall Street, nudging the S&P 500
\n SPX,
\n +0.46%<\/bg-quote>
\n out of a grinding trading range. <\/p>\n

While investors wait for more DC developments, big retailer Walmart reported on Thursday, while an appearance by Fed Chairman Jerome Powell looms for Friday.<\/p>\n

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As for Wednesday\u2019s action, some are highlighting the bullish bets that are counting on the White House and lawmakers getting a deal done (read more on 0DTE \u2014 zero days to options expiration trading \u2014 here):<\/p>\n

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But investors may need to be light-footed if they want to catch any ride higher on debt-ceiling hopes, says our call of the day<\/strong> from Cameron Dawson, chief investment officer at NewEdge Wealth, a boutique wealth manager. She urges investors to play the debt-ceiling optimism carefully.<\/p>\n

\u201cI think that the debt ceiling is the biggest buy-the-rumor-sell-the-news event, because the lead-up to the debt ceiling has actually been a major driver of liquidity being pumped into this market,\u201d she told CNBC in an interview late Wednesday.<\/a> <\/p>\n

\u201cWhen the Treasury has been spending down its cash balance instead of issuing new bonds, the end result is that it increases reserves in the system and adds liquidity and that\u2019s one of the reasons why growth stocks, technology stocks, speculative stocks have been up year to date,\u201d said the former Bank of America equity analyst. <\/p>\n

\u201cBut when we get past the debt ceiling, the Treasury will start issuing new bonds and that will have the net effect of taking liquidity out of this market,\u201d removing a tailwind for equities, said Dawson. <\/p>\n

Debt ceiling debate: <\/strong>How U.S. government debt and stocks will perform if a resolution is reached, says DataTrek<\/p>\n

Her firm has been cautious on stocks, and she\u2019s not shifting there, though that means sticking to quality names, rather than hiding out in cash, she says. \u201cWe\u2019ve been staying invested, but it\u2019s saying we don\u2019t think that names that have high leverage or weak cash generation are where we want to be in this environment.\u201d <\/p>\n

\u201cSo in a tight liquidity environment, in an uncertain environment, you want to stay in those quality names in portfolios in order to ride out the cycle,\u201d said Dawson. <\/p>\n

Our last word goes to one bullish voice out there who predicted a move higher for stock at the start of the week.<\/p>\n

In his weekly newsletter that published on Monday, Kobessi Letter\u2019s editor-in-chief Adam Kobeissi laid out a bullish technical setup for the S&P 500 that may put sell-in-May theories into question. <\/p>\n

\u201cFundamentally speaking, equity markets have been incredibly resilient despite a plethora of headwinds and we believe this will remain the case into June,\u201d he wrote.<\/p>\n

Kobeissi called 4,150 as near-term resistance on the upside \u2014 the S&P 500 closed at 4,158.77 on Wednesday \u2014 but said 4,200 was the \u201creal long-term pivot point that bulls need to break.\u201d <\/p>\n

\u201cThe last time the S&P 500 traded above 4,200 was in August 2022 and the 4,200 level has been rejected multiple times since then. It is possible that the near-term consolidation we have seen is building technical energy for a breakout,\u201d he said, adding that they remain bullish that 4,200 will be reached. <\/p>\n

Read: <\/strong>\u2018Doomsday machine\u2019: Here\u2019s what could happen if the debt ceiling is breached<\/p>\n

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The markets<\/h2>\n

U.S. stocks
\n SPX,
\n +0.46%<\/bg-quote><\/p>\n

DJIA,
\n -0.13%<\/bg-quote><\/p>\n

COMP,
\n +1.04%<\/bg-quote>
\n are mostly struggling to follow up Wednesday\u2019s rally, with some losses notably after fresh Fed commentary. Oil prices
\n CL.1,
\n -0.84%<\/bg-quote>
\n are down, with gold futures
\n GC00,
\n -1.46%<\/bg-quote>
\n continuing to slip at $1,974.30 an ounce. The yield on the 10-year Treasury\u00a0
\n TMUBMUSD10Y,
\n 3.636%<\/bg-quote>
\n was up 5 basis points at 3.62%. Asia stocks
\n NIK,
\n +1.60%<\/bg-quote>
\n followed up Wall Street\u2019s Wednesday rally with strong gains of their own.<\/p>\n

Read: <\/strong>Japan\u2019s stock market is on a tear. Is it too late to jump in?<\/p>\n

For more market updates plus actionable trade ideas for stocks, options and crypto,\u00a0subscribe to\u00a0MarketDiem by Investor\u2019s Business Daily.<\/strong><\/p>\n

The buzz<\/h2>\n

Walmart shares
\n WMT,
\n +0.70%<\/bg-quote>
\n are higher after the retailer beat forecasts and lifted its full-year earnings outlook, while Bath & Body Works
\n BBWI,
\n +10.80%<\/bg-quote>
\n stock is rising on forecast-beating earnings and raised guidance. Alibaba
\n BABA,
\n -3.64%<\/bg-quote>
\n stock is down after the Chinese e-commerce giant posted mixed results. Ross Stores
\n ROST,
\n +0.55%<\/bg-quote>
\n and Applied Materials
\n AMAT,
\n +4.21%<\/bg-quote>
\n are due after the market close.<\/p>\n

Read:<\/strong> CEOs and other top execs are saving billions with \u2018top hat\u2019 retirement plans, study says<\/p>\n

From after-hours earnings news, Cisco stock
\n CSCO,
\n +0.13%<\/bg-quote>
\n is down 3% on worries about declining orders \u2014 CFO Scott Herren told MarketWatch that clients are just being \u201cprudent.\u201d Take-Two stock
\n TTWO,
\n +11.95%<\/bg-quote>
\n is up 10% after an outlook hinted the next \u201cGrand Theft Auto\u201d video game is a year or so out. Retailer Boot Barn
\n BOOT,
\n -12.41%<\/bg-quote>
\n shares are down 15% on weak sales.<\/p>\n

Netflix
\n NFLX,
\n +7.81%<\/bg-quote>
\n says its ad-supported tier has nearly 5 million monthly active users globally.<\/p>\n

Weekly jobless claims fell by 22,000 reversing a rise in the prior week, while the Philly Fed factory index showed a 9th-straight decline in activity. Existing home sales and leading economic indicators are still to come at 10 a.m. Dallas Fed President Lorie Logan said data doesn\u2019t justify a pause on rate hikes just yet. Fed Gov. Philip Jefferson was due to 9:15 a.m. and Fed Vice Chair for Supervision Michael Barr is due on Capitol Hill at 9:30 a.m.<\/p>\n

Montana has become the first state to ban TikTok, which calls the new law unconstitutional.<\/p>\n

Florida Gov. Ron DeSantis reportedly plans to officially launch his presidential bid next week.<\/p>\n

The best of the web<\/h2>\n

Retailers say theft cost nearly $100 billion last year. But are stores using crime stats to cover up other problems?<\/p>\n

These 20 AI stocks are expected to post the highest compound annual sales growth through 2025<\/p>\n

Famed Watergate reporters warn on the limitations of AI <\/p>\n

The chart<\/h2>\n

Credit Suisse strategists point out that investor bets on S&P 500 decline \u2014 via e-mini S&P 500 futures
\n ES00,
\n +0.52%<\/bg-quote>
\n \u2014 are at extremes not seen since 2011. Should the index push through big resistance levels, they say these bets could unwind and cause a massive short-covering rally. <\/p>\n

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The tickers<\/h2>\n

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
\n Ticker<\/p>\n<\/td>\n\n Security name<\/p>\n<\/td>\n<\/tr>\n
\n TSLA,
\n +0.71%<\/bg-quote>\n <\/td>\n		\n Tesla<\/p>\n<\/td>\n<\/tr>\n
\n NVDA,
\n +4.24%<\/bg-quote>\n <\/td>\n		\n Nvidia<\/p>\n<\/td>\n<\/tr>\n
\n GME,
\n +0.93%<\/bg-quote>\n <\/td>\n		\n GameStop<\/p>\n<\/td>\n<\/tr>\n
\n MULN,
\n -0.41%<\/bg-quote>\n <\/td>\n		\n Mullen Automotive<\/p>\n<\/td>\n<\/tr>\n
\n BABA,
\n -3.64%<\/bg-quote>\n <\/td>\n		\n Alibaba<\/p>\n<\/td>\n<\/tr>\n
\n AAPL,
\n +1.04%<\/bg-quote>\n <\/td>\n		\n Apple<\/p>\n<\/td>\n<\/tr>\n
\n PACW,
\n +6.12%<\/bg-quote>\n <\/td>\n		\n PacWest Bancorp<\/p>\n<\/td>\n<\/tr>\n
\n AMC,
\n +0.69%<\/bg-quote>\n <\/td>\n		\n AMC Entertainment<\/p>\n<\/td>\n<\/tr>\n
\n WETG,
\n -4.22%<\/bg-quote>\n <\/td>\n		\n WeTrade<\/p>\n<\/td>\n<\/tr>\n
\n AI,
\n +1.86%<\/bg-quote>\n <\/td>\n		\n C3.ai<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

Random reads<\/h2>\n

When the $30,000 violin bow breaks.<\/p>\n

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Need to Know starts early and is updated until the opening bell, but\u00a0sign up here\u00a0to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.<\/strong><\/p>\n

Listen to the\u00a0Best New Ideas in Money podcast\u00a0with MarketWatch reporter Charles Passy and economist Stephanie Kelton.<\/strong><\/p>\n<\/p><\/div>\n