Stocks Waver As Traders Weigh Debt Talks, Fed Path: Markets Wrap

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Rita Nazareth

20 May 2023, 12:29 AM IST

<div class="paragraphs"><p>Morgan Stanley Private Wealth Adviser Katerina Simonetti explains why she thinks the bear market is incomplete and says she is telling clients to "stay defensive" during an interview with Jonathan Ferro on "Bloomberg The Open."</p></div>

Morgan Stanley Private Wealth Adviser Katerina Simonetti explains why she thinks the bear market is incomplete and says she is telling clients to "stay defensive" during an interview with Jonathan Ferro on "Bloomberg The Open."

(Bloomberg) -- Traders pared bets on a Federal Reserve rate hike in June to 25% as Jerome Powell signaled a pause. Stocks fell amid a slide in banks and concern US lawmakers are struggling to reach a deal to prevent a default.

The S&P 500 halted a two-day rally, failing to stay above the closely watched level of 4,200. The $3.2 billion SPDR S&P Regional Banking exchange-traded fund slumped almost 2% on a news report that Treasury Secretary Janet Yellen told the chiefs of large lenders that more mergers may be needed.

Debt-limit negotiations hit an impasse as House Speaker Kevin McCarthy blamed the White House for resisting spending cuts. “We’ve got to get movement by the White House and we don’t have any movement,” McCarthy, who was not in the Friday meeting, said. “So yeah, we’ve got to pause.”

“With the walkout of Republican debt-ceiling negotiators hindering chances for a viable conclusion before the upcoming X-date,” that would weaken chances for the Fed to raise rates on June 14, said Quincy Krosby, chief global strategist at LPL Financial.

The Treasury had just $92 billion in funds left for extraordinary measures to help keep the government’s bills paid as of May 17, the department said in a statement Friday. That’s up from around $88 billion on May 10 and means that a little over a quarter of the $333 billion of authorized measures are still available to keep the US government from running out of borrowing room under the statutory debt limit.

‘Reasonable Odds’

Stocks are primed for a precipitous drop if the US fails to raise the debt limit and delays government payments.

That’s the warning from a team of UBS strategists. Although it’s unlikely, if the US formally defaults and delays all payments beyond principal payments for a week, the S&P 500 will fall as much as 20% toward 3,400, the team led by Jonathan Pingle said.

“At the moment, we see reasonable odds, roughly 50%, that Congress passes a short-term extension. However, given the two sides ruling that out, our assessment could be very wrong,” said the strategists.

Corporate News

James Gorman, who transformed Morgan Stanley after it nearly collapsed during the global financial crisis, plans to step down as chief executive officer within the next year and assume the role of executive chairman.
Deere & Co. raised its full-year profit forecast amid strong demand for farm equipment and the easing of supply chain woes that have dogged companies since the pandemic.
Foot Locker Inc. added more evidence that US consumers are pulling back on spending as the shoe retailer cut its annual sales forecast.