The only story to be made of yesterday's market moves is that, well, there wasn't one. In other words, as I argued yesterday, markets are still in reactive mode, not a sustained rally.
Indeed, all three major indexes fell on Tuesday. The S&P 500 fell 1.12%, the Dow Jones Industrial Average slid 0.69% and the Nasdaq Composite tumbled 1.26%.
Investors were probably spooked by the lack of updates on the debt ceiling from Washington, despite U.S. President Joe Biden and House Speaker Kevin McCarthy describing their Monday meeting as "productive."
And even if a deal were reached, analysts warn there's more pain to come. With reserves in the U.S. Treasury's account dwindling, the department will have to issue a lot of debt to get its account back to healthy levels, said Bill Merz, head of capital markets research at U.S. Bank Wealth Management. "The impact of that is likely to remove liquidity from the broader capital markets," continued Mertz. That's to say, stock prices might still drop after a deal is reached.
Nonetheless, there were pockets of good news amid the broader market slump yesterday.
Stocks of vaccine manufacturers jumped amid news of a fresh Covid-19 wave in China. BioNTech popped 8.2%, Pfizer added 2.3% and Moderna leaped 8.7%. Investors, however, should note this movement isn't driven by any intrinsic change within the companies, but by external factors — and transient ones, at that. Covid waves come and go; vaccines stock prices will rise and fall in response.
PacWest surged 7.7% — and a further 4% in extended trading — after the U.S. regional bank announced Monday it would sell its real estate loans, which would improve its balance sheet. PacWest helped buoy other regional banks, such as KeyCorp, Comerica and Zions Bancorp, giving investors hope that the sector's troubles will blow over soon.
But even concerns over regional banks are overshadowed by the unresolved debt ceiling. Markets can't move until this sword of Damocles is gone — and, even then, there might be more problems to contend with.
