Few areas spared as S&P tests key ~4200 level, while the Speaker's future came into doubt (shifting power in Congress), and more significantly whether the economy can hold up as yields move higher.

Freepik

Now that he's ousted, you'll have new efforts to corral the Republicans into a consensus for new Speaker, and things grind to nearly a halt for the moment (leadership vacuum of sorts).

So far the economy is holding better than the market, but not a surprise. For sure near ~5% returns find money 'parking' in higher-yield instruments/paper, even if that's temporary before accumulation for prospective gains in 2024. In fact there's a linkage between the market, debt, and the Speaker in just a bit of a different way: the shutdown or not drama could be repeated in six weeks if not addressed sooner, as the funding stopgap measure, passed Saturday night, is temporary. None of it particularly encouraging to investors, for now.

The odd outcome of this Washington chaos might be alright after tensions of the moment ease, someone from the caucus could sort of unify the Party, but it creates a headache (first time in over 100 years a Speaker's been ousted), and can't do anything really until a Speaker is elected. The interim McHenry is not going to be able to handle the House's work. Maybe first time in history.

Disfunction and instability are not the key market influences, rather raising the huge amounts of money (regardless of the personages involved) is something evident beforehand, and maybe this does continue to reflect chaos negativity, and clearly bond vigilantes are having an impact on disparate thinking in DC.

This is mostly about 'yields' near 5% and S&P technical vulnerability as 'algo-driven' selling could be triggered, on a break below 4200, but bears should be cautious as the zigs and zags can culminate with rallies later, after uncertainty is diminished, which happens in the weeks ahead, albeit not likely just as yet.

Market 'X'-ray: 

Views the short-term scuffling around S&P 4200, which could by the way result in a washout for mega big-caps, preceding a recovery, even fast, but not quite yet. So constructive about next year, and more so if heavily hit in the shorter run, because that will also intimidate the Fed's hawkish tone.

OPEC+ Committee convenes tomorrow, although no big changes likely, yet

There's no catalyst to trigger a move higher, and some bulls are just figuring that out. We have had no particular upside targets (other than bounces that at times occur, at other times don't) to prior little S&P gaps, and have envisioned ~4200 and when it breaks, potentially -but not necessarily- down to ~3800.

The S&P is indeed almost at a crossroads, and flirting with the breakdown. A fair amount of data tomorrow, from ISM Services to Energy Inventory data. A lot of headwinds, student loans, strikes, global tensions, but no single issue to be labeled a swooping black swan, and I don't see the DC drama as quite so.

Bottom-line: competitive returns from current yields are relevant short term, but not further out. Rationalizations that the market should drop as a result because higher rates will be obtained in equities, isn't automatically correct 'yet', because there's lots of money on sidelines, but so far lacks a reason to come into play (working its way into stocks).

OPEC+ likely isn't at a point of raising production levels, presuming there's at this point no U.S./Saudi security deal, although if so that's still 'classified'. The bond market plunge and proximity to breaking S&P 4200 is where we stand at this point, and there's no particularly optimistic catalyst for the moment.

More By This Author: