Market Commentary
Brian Stutland

Navigating Market Volatility: Key Considerations Before the Opening Bell – June 8th, 2023

As global central banks surprise the market with rate hikes, investors are eager to understand the implications. With Canada and Australia raising their benchmark rates, attention shifts to the upcoming US Federal Reserve meeting. Amidst speculations on potential rate hikes, the economy displays signs of strength. However, the impact on debt-laden companies and earnings expectations raises concerns. Additionally, the recent US debt ceiling bill passage introduces questions about the effects on equities as new treasury bills are issued. Let’s explore the key factors shaping the market landscape and ascertain whether it will be a smooth summer vacation or a wild ride.

  1. Global Rate Hikes and Economic Strength: Surprise rate hikes by central banks in Canada and Australia indicate inflation is still lurking. The possibility of a US Federal Reserve rate hike looms, potentially affecting companies with debt and their earnings outlook.
  2. US Debt Ceiling and Treasury Bills: With the US debt ceiling raised, the issuance of new treasury bills is imminent. This influx of approximately $1 trillion in T-bills could divert investment away from equities and into treasuries, which offer attractive interest rates. Nevertheless, substantial cash reserves on the sidelines and the market’s willingness to pay for earnings will influence equity prices.
  3. Fear and Greed Index: Extreme Greed and Complacency: Following a 2% drop in the Nasdaq, the fear and greed index has reached extreme greed levels. Record call volume and historically low volatility indicate a highly bullish sentiment. The SPIKE index, hitting a three-year low, highlights a worrisome level of market complacency. Additionally, retail investors’ overwhelming interest in call options raises concerns about potential FOMO-driven behavior.

Conclusion:

As we approach a pivotal week, investors brace themselves for potential market turbulence and seek clarity regarding interest rate decisions. Will the economy’s resilience enable a peaceful summer vacation, or are we in for a roller coaster ride? Market dynamics will be influenced by economic indicators, earnings performance, and investor sentiment. Stay informed, remain vigilant, and make well-informed investment decisions based on evolving circumstances.