Uddrag fra John Authers:
The debt ceiling is dominating today’s headlines. As I write, Speaker of the House Kevin McCarthy has gone on record as saying that the limit on the US government’s borrowing must be raised this week to avert a default. The political game theory is ever more fascinating.
It’s not the only ceiling to preoccupy markets. Round numbers and lines on charts shouldn’t matter, except that often they do. In the short term, securities markets are about waves of psychology and confidence. Specific landmarks can be endowed with importance, and this can become self-fulfilling. There is no great significance to the number 4,200 for the S&P 500 index. It’s been higher than that. But ever since last August, it seems to have been a ceiling. The index has traded briefly above the threshold for several days now, but failed to close there:
Breakouts from a range can have a big impact on market psychology. So can failed breakouts.This matters. There is a dose of nerves about taking it to those levels. Further, Wall Street’s strategist community is braced for the S&P 500 to fall from here by the end of the year. My Bloomberg colleague Lu Wang keeps a regular score-sheet of estimates. Her latest poll of 23 strategists, published at the end of last week, found an average end-year prediction of 4,017, with a median of 4,000. Analysts’ forecasts tend to be dragged upward by strong performance, but they are still at this moment predicting a decline of almost 5%. So the flirtation with a new high hasn’t yet created too much optimism among asset allocators.
Many are spooked by the sheer narrowness of the rally. It’s not unusual for a few big stocks to dominate at any one time, but the growth of the FANGs (big internet platforms, initially an acronym for Facebook, Amazon.com, Netflix and Google) is truly phenomenal. They enjoyed a massive boom during the lockdown year of 2020 when perceived to offer unique protection against the pandemic. Smaller companies, deemed much more vulnerable, lagged badly behind.
After a peak relative to the small-caps of the Russell 2000 index in September 2020, it appeared that some normality was returning, as the FANGs steadily lost ground. That’s been eradicated in the last six months, and they have set a new comparative high:
To be clear, it’s very unusual for smaller caps to trail so badly if stocks have really hit rock bottom and moved on to the first stage of a bull market. Indeed, if last October’s lows for the S&P 500 really were the trough, this is an unprecedentedly narrow recovery, owing almost everything to a small group of stocks
