President Biden and Speaker McCarthy met to discuss the debt-ceiling issue on Monday afternoon, but a deal to avoid a default remains elusive. While governmental officials warn of the disaster that will occur if there is a default, the stock market continues to be quite sanguine about about both sides reaching a deal. The consensus view is that a last-minute deal is a near certainty.
Unfortunately, this leaves the market in limbo. The market is pricing in a deal, and there is a good likelihood of some sort of relief bounce when the headlines finally hit, but it is a classic sell-the-news situation. The market has never really been worried about the possibility of a default, so there is no positive surprise to bring in more cash.
In the meanwhile, the market is treading water. The bears are afraid to get in front of the positive news, so they are just sitting and waiting on the sidelines. The bulls are still focused on the narrow strength, which is viewed as a safe haven no matter what occurs with the debt ceiling.
From a trading standpoint, this is currently a very tough market. There is weak seasonality, narrow strength, and a lack of momentum. There just aren't any compelling reasons to make big moves in front of the debt-ceiling issue.
There is so much anticipation that a debt-ceiling deal could trigger a short-term top that may initially cause a squeeze that then turns into a self-fulfilling prophecy. The prudent move is to wait for the news and trade the ensuing volatility. That appears to be the plan of many traders and is why the current action is so lackluster.
We have a mixed start on Tuesday morning. A few earnings in the retail sector are seeing a mixed reaction, and there is the release of the minutes of the last Fed meeting this afternoon, but there isn't much out there to distract traders from the debt-ceiling issue. We will just have to sit and wait for it.
