As stocks approach record highs, the market is looking rather complacent
As the market nears a historic high on the S&P 500 some analysts are concerned that it’s looking a bit complacent. Maybe even bored.
The fact is that, while many have assumed that the Syria “problem” has gone away, that the economic data coming out of China will continue to improve and that the yield for US 10 year treasury bonds will stay in a range of high 2% to low 3%, all of these assumptions are far from a certainty.
Indeed, in the next few weeks there are at least 4 different events that could definitely shake up the markets.
- Fed tapering. Wall Street seems to be convinced that there’s not going to be tapering or what they call “taper light”. What this is is a cut of only $10 billion in treasury purchases with little or no cuts in mortgage-backed securities. While that’s all good and well, if there’s a $20 billion taper, it’s not going to be priced into the market.
- The federal government’s continuing spending resolution. On October 1, unless the federal government produces a continuing spending resolution, there’s going to be a complete government shutdown. Since a part of the deal that House Republicans want is Obama care restrictions, this is a brewing mass that could very easily blow up and cause all sorts of market ramifications.
- The debt ceiling hike. This is also part of the continuing spending resolution deal however, as of yet, House Republicans have not even said what they want. That’s never a good sign.
- Germany’s September 22 elections. Two things are clear in Germany right now: the German electorate definitely does not want endless bailouts (of Greece, Spain or any other country) and Merkel is having a much tougher time winning the race than she anticipated. Recent polls show that, even though the electorate wants to continue with the European Union, they would like it to be much smaller. What’s expected by traders is that Greece will be quietly moved out of the EU during the following year. As far as the market is concerned, this is definitely not priced into it.
Yet, despite all of these concerns, at 14 and change the CB0E Volatility index is remaining near its lows for the year. What that leaves the market with is the S&P that nearly historic highs, a bunch of macro events that could potentially rattled the market over the coming weeks and VIX near lows. As far as risk is concerned, it appears to be on the downside.
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