Markets: Bad news for the economy is now bad news for Wall Street


New York
CNN

The market is preparing for a perfect storm of bad news. What is the final concern? impending debt ceiling Drama in Washington.

struck the United States borrowing ceiling on Thursday, forcing the Treasury Department to begin taking “extraordinary measures” to keep the government open.

If no agreement is reached, Markets can sink (as they did the last time this happened in 2011) and the United States risks owning it Downgrade the credit rating repeatedly.

“From an economic and financial perspective, failure to raise the debt ceiling would be an unmitigated disaster,” David Kelly, chief global strategist at JPMorgan Funds, said in a report released earlier this week.

Kelly added that “failure to raise the debt ceiling is the most pressing financial threat to the economy and markets in 2023” and that a deal is needed sooner rather than later in order to reassure markets.

The financial chaos should eventually lead to compromise in Washington. However, this may not happen soon enough to prevent a recession and could leave some permanent scars, including a permanent increase in the cost of financing US federal debt, Kelly said.

This would be disastrous news for the economy. Investors no longer ignore negative headlines.

There is an old saying on Wall Street Bad News For the economy it is indeed good news for the stock market and vice versa. That’s because investors often bet that dismal headlines will eventually prompt the Federal Reserve and other central banks to cut interest rates and provide more stimulus that can help boost corporate earnings…and stock prices.

But Heavy selling in the market on Wednesday Thursday’s continued slide may mark a turning point in market sentiment. the daw It was down about 125 points, or 0.4%, in midday trading, and is now flat all year. the Standard & Poor’s 500 It also fell 0.4% instead Nasdaq decreased by 0.6%. However, shares were off their lows earlier in the day.

However, after a promising start to the year, the stock appears to have taken a turn for the worse. Bad news may actually be bad news.

“We’ve been weighed down by expectations of a soft landing for the US economy,” Kate Jukes, chief global foreign exchange strategist at Societe Generale, said in a report Thursday. “Take the blanket and you’ll be cool.”

Yes, the Fed is now likely to “only” raise interest rates by a quarter of a percentage point when its two-day meeting on Feb. 1 ends. Inflationary pressures are easing.

However, the promise of fewer interest rate hikes and the possibility of a Federal Reserve pause later this year is no longer enough to counter mounting evidence that the US economy may be in rough shape.

Retail sales fell More than expected in December. Industrial production unexpectedly fell last month as well, in a sign of weakness in the manufacturing sector.

“A host of economic data … suggests that the economy is finally slowing more broadly, and that the all-important consumer is becoming more cautious about spending,” Quincy Crosby, chief global strategist at LPL Financial, said in a report.

“What would have seen markets rejoicing in weaker data only a few weeks ago… is now judged more harshly with bad news no longer enjoying a warm welcome,” she added.

Profits of major banks were mixed. High mortgage rates It has already reduced the demand for housing. Many bank CEOs have warned about this A recession may lie ahead.

Market analysts at Evercore ISI announced in a report on Wednesday that “the market rally for the new year is over” and that the latest data reinforces an underlying case of a recession that began in the second half of this year.

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