Today we are joined by Director of Quantitative Market Strategy, Denise Chisholm, to discuss the impending debt ceiling decision, the treasury implications following a deal, and how it could affect the market environment. As pressure mounts on leaders to reach a deal, Denise explains to host Pamela Ritchie that investors are concerned about liquidity, following a debt ceiling resolution. She describes how, over the last year, the General Account of the Treasury has been using significant resources, which it will likely attempt to replenish by issuing Treasuries, in turn depleting the reserves of the banking system. The near perfect correlation between those reserves at banks’ balances and the S&P 500 over the last 21 months suggests that a liquidity withdrawal will negatively impact equity markets, even if a debt ceiling deal goes through. Turning to the developing inflation story, Denise explains that the Fed could keep hiking rates if the service side of the economy stays strong. She suggests that investors may not want to look to the Fed when it comes to predicting market trends, and instead suggests that overall inflation is a more effective driving metric. Denise also breaks down emerging trends in the technology sector, citing the 40% peak to trough contraction in the NASDAQ and the 60% decline of individual growth stocks as primary reasons for its recent defensiveness.

Recorded on May 23, 2023.

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