The Debt Ceiling and Asset Positioning

What to expect during and after the Debt Ceiling resolution

The market seems to be in a mixed mood. We’ve been chopping sideways for the greater part of two months. The market, however, is fraught with concern. Investors have been hiding out in the big tech stocks, to avoid exposure to the banking sector and even industrials.

Nothing has changed where the macroeconomic cycle is concerned but investor sentiment seems to be shifting on a great many issues. These are not just retail investors we’re talking about but, even large institutions. The most recent BoFA survey shows investors are pessimistic about the environment and they have a great many reasons to be. The great macroeconomic data is not improving and most signs point to tough times ahead.

Discussions and market sentiment data lead us to believe that there are quite a few specific factors weighing on the market. The Debt Ceiling is one obvious issue that’s a hot topic right now but, so is the shift in equity positioning, takeaways from first quarter earnings and the Fed’s likely pause.

Equity position is odd now in this market and there’s been some shift in the negativity where equities are concerned. There’s still quite a bit of confusion and defensive action and most of this is on account of the debt ceiling issue.

In past instances of the debt ceiling issue, the market mostly traded sideways until resolution. But what happens after resolution and how asset classes have behaved is what is extremely interesting.

We take a look at this below.