Transcript:
Tom Vaughan:
Everybody, welcome to Wednesday, the S&P 500 was up almost 1%, today. All of the indexes were up a lot. The Russell 2000 was actually up 1.6%, today. Really strong day. It started off with the big company in China, called Evergrande, that has $300 billion in debt who had $84 billion that was due next week. They only had $15 billion on hand, essentially resolving that $84 billion, which I suspected would happen. You’re looking at a centralized control country, that’s trying to rearrange the way things are being done there, and $84 billion is not a lot of money to the second largest economy in the world, so that resolved itself.
We had a really big move right away in the mornings. And then this afternoon, we had the Federal Reserve meeting and then Chairman Powell came out, and said a couple of really interesting things, that normally would have been negative, but in today’s market, it basically just created a “sideways motion.” Number one is they stated, reconfirm that they’re going to cut back on the purchase of these bonds. They didn’t give a definitive timeline as far as that goes, but they did talk about the possibility of six to seven rate increases, by the end of 2024, so that’s the first time that they’ve said that. And they even said, there might be a rate increase in 2022, next year.
So again, these are normally negative things that the market would look at, but in this particular case, one of the things that’s kind of interesting about this, is that what the Fed is saying is that they’re seeing that the economy is doing quite well, and they expect it to do well. They have access to a lot of data, they don’t always get it right, but definitely it’s one of the things that I think would excite the market in that regards. And some interest rate increases at some point might take off some of the inflationary fear that’s happening, so if the Fed waits too long to raise interest rates and inflation could peak up.
So, maybe this announcement was an okay thing to the market. Again, we didn’t see a big movement up or down, based on these comments. But, I think the big picture and the thing to keep your mind on, is two big catalysts that we have to watch for. Number one, is the S&P 500 fell through its 50 day moving average. And a lot of people trade off of this, so when the price gets down near the moving average, it’ll jump back up, because people buy off of that bounce. And then when it falls through, oftentimes when it gets back to the 50 day moving average, you start to see some selling.
So we’re below the 50 day moving average, and we got close to it today. So we’ll see what happens tomorrow, that’ll be important. Need to get through that to kind of be able to continue to go forward. And the second thing would just be the fact that the debt ceiling isn’t resolved. So, the house has passed a resolution with a bunch of pieces in it, but essentially one part is to increase the debt ceiling, and they’re pushing that off to the Senate. So, this is a political move, meant to make the senators on the Republican side, especially, vote against it, and basically vote for shutting down the economy and defaulting on debt and all kinds of bad things. And they’re trying to get these republicans in these swing states to come out and vote against it, and they could use that, you know, in the midterm elections and what have you.
My guess is that they’ll allow some of those Republican senators to actually vote yes, especially the most exposed in terms of their swing state, but not enough to get it through. They need 10 Republicans to step across the aisle, to get to a total of 60, assuming every democrat votes for it, also. So, the democrats can get this done through budget reconciliation. Add it to their budget reconciliation bill, push it through, get it into the Senate, and win with a 50% vote. But, they say they’re not ready with that yet. Although, I suspect that if the senate turns it down, all of a sudden, we will see a reconciliation bill because the democrats don’t want to be blamed for shutting it down.
So, this is a political game. Actually, if you look at it, it might be the right thing to do politically, but I tell you what, the stock market doesn’t like these types of games at all. And so I do think that will continue to create some instability in the stock market, and until that is resolved, I can have a really hard time imagining the market just going straight up and doing great things. So, I would hang in there. Nice to see an up day, today. It’s great, as far as that goes. Tomorrow will be important to see what happens: Do we get through the 50 day moving average? Do at least hold up, and not come back down? Is there some more resolution that happens from the debt ceiling? So anyway, as usual, very interesting times and look forward to seeing what’s going to happen tomorrow. Thank you very much.