Stocks Shrug Off 'Bigger Issues' - How Long Can It Last?

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Our View

We seem to go from one bad thing to the next and now the hot topic is earnings — or should I say, the lack thereof — and the next thing will be the US debt ceiling.

In a speech on the NYSE floor yesterday, rep. Kevin McCarthy said that the “debt negotiations are an opportunity to examine our nation's finances" and the picture is not pretty. Currently, US debt held by the public is more than $25 trillion. Spending as a share of the economy is 23.7% of what the Congressional Budget office reported in February, and will rise to 24.9% in 2023. These levels have only been reached two times since 1949 — in 2020 and 2021 when Congress poured a record amount of money into the Covid pandemic emergency.

McCarthy says that the Biden Administration and Congress laid out plans to spend $6 trillion in a mere two years, on everything from Covid responses, to electric car subsidies to an IRS blowout. And that Americans will spend $10.5 trillion in the next decade on interest payments alone.

This is not about picking sides — both have been responsible for the ballooning debt. At some point though, we are going to have to deal with this problem.

I started writing something about the 2008 Credit Crisis and how everyone said we were just “kicking the can down the road” with all the QE programs and here we are. I know this “can” is now totally unsustainable (and has been), but the more money we print the more likely we are to see some type of cataclysmic dollar event.

Our Lean

People are totally overlooking the major problems facing the US. Apparently though, the market is not worrying about any of that right now. That’s clear as the VIX traded down to $16.95 on yesterday's close.

There’s been outflows out of stocks — as evidenced with the MiM — as institutions continue to buy bonds with their 4.5% to 5.5% yields and gobble up gold (which was within 1.25% of its all-time high last week). That said, the S&P holds well.

Our Lean: 

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