Morning Toast 23rd May

Jeez, US markets are emotional!


Last week, investors shrugged off debt ceiling worries to send the S&P and the Nasdaq to their best weekly performance since March. Who had the Nasdaq 100 up +21% in H1? No one, that's who! Many projected a weak H1 and a recovery in H2. The opposite occurred in the first half, and the S&P 500 may now also be close to 52-week highs. 

It seems that when investors realised there is an alternative to earning 0.01% in a savings account, capital fled to money market funds yielding ~5%. Since then, money has piled into Tech stocks as the new defensives, riding the AI hype train.

Four giants that have made a big deal about investing in AI - Meta, Alphabet, Microsoft, and Nvidia have surged in 2023 and now account for ~15% of the S&P 500’s market capitalisation, according to Barron’s.

But it’s been an emotional roller coaster of late, making it very hard for investors to get to grips with what's going on. Last week reported encouraging data pointing to the US avoiding recession. This week traders are cautious ahead of a potential debt ceiling debacle, making money managers very pessimistic about the prospects of a recession.

  • Equity funds have seen net outflows for 7 consecutive months, including ~$24 billion in the first 3 weeks of May.

  • Investors, meanwhile, are seeking safety in long-dated Treasuries.

  • The options market also reflects worries over a debt ceiling impasse: traders are using VIX call options to bet stock volatility will rise at its fastest rate since March 2020.

Stock Spotlight

News round-up today!

A SpaceX rocket blasted off to the International Space Station in a mission organised by the private space company Axiom Space. It’s carrying the first Saudis to go to space since 1985.

The US Esports industry is hurting, with viewership down 32% from 2021 and organisations selling their teams.

Meta has been fined a record-breaking $1.3 billion over data-privacy breaches. Meta was previously warned about transferring European Facebook users' data to US servers.

A lawsuit against DoorDash alleges what some users have long suspected: the company could be charging Apple users more than Android owners. The suit also said that customers who used DashPass, the company's $10-a-month service, were charged an extra fee for each order.

Even Apple will have a hard time making the metaverse cool. The iPhone maker is widely expected to debut its mixed-reality headset next month, a risky move as the tech world retreats from the metaverse and fixates on AI.

Douugh, Did you know?

Ah, the U.S. debt ceiling, it's the fiscal tightrope that keeps us all on the edge of our seats. A political hot potato that turns into a game of chicken.

It's the maximum amount of cash Uncle Sam can borrow to keep the government's gears grinding smoothly. When that ceiling gets perilously close, it's time for Congress to bust out its political moves and decide whether to raise it or risk default. It's a dance of numbers and legislation that can make or break economies.

What is the US debt ceiling and how does it work?

The US debt ceiling is a legislative limit on the amount of money that the United States government can borrow. It was created in 1917 to give Congress more control over the federal budget. The debt ceiling is currently set at $31.4 trillion.

When the government reaches the debt ceiling, it can no longer borrow money to pay its bills. eek! This can lead to a government shutdown, which is when the government is unable to provide essential services to the public.

This can affect millions, with the leading parties fighting to agree on what the debt limit should be and what the money can be spent on.

Why is the debt ceiling important to the US and global economy?

The debt ceiling is really really really important to the US and the global economy! It can lead to a government shutdown which can lead to a decrease in economic activity, as businesses and consumers are hesitant to spend money when they are not sure if the government will be able to pay its bills. This can lead to job losses and a decrease in economic growth. It can also have a negative impact on the global economy, as it can lead to a decrease in demand for US goods and services. This can lead to a decrease in exports and a decrease in economic growth.

What happens if no agreement is reached and the US goes into default?

If no agreement is reached and the US goes into default, it will have a number of negative consequences for the US and the global economy.

  1. The government will be unable to pay its bills, which could lead to a government shutdown.

  2. The US will lose its credit rating, which will make it more expensive for the government to borrow money in the future.

  3. The US dollar will lose value, which will make it more expensive for Americans to buy goods and services from other countries.

  4. The US economy will slow down, as businesses and consumers will be hesitant to spend money when they are not sure if the government will be able to pay its bills.

  5. The global economy will slow down as the US is a major trading partner with other countries.

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