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Stocks Stumble For 2nd Straight Week Amid Debt Ceiling Doubts, FOMC Fears, & Gamma Unclench

Tyler Durden's Photo
by Tyler Durden
Friday, Sep 17, 2021 - 04:00 PM

The usual avalanche of debt-ceiling fearmongering has begun (which of course will continue until 1 second before the deadline when an agreement will suddenly be found) and that along with anxiety ahead of next week's FOMC and today's gamma unclenching from quad witch expirations did not help dip-buyers save stocks for the week.

Nasdaq was the week's biggest loser and a late-day buying spree into the OpEx pushed Small Caps into the green barely for the week...

Energy stocks massively outperformed on the week while Materials were the big laggards...

Source: Bloomberg

But anxiety remains as Debt Ceiling doubts have created quite the kink in the bills curve...

Source: Bloomberg

And pushed the anxiety proxy to cycle highs...

Source: Bloomberg

Analysts at Eurasia Group, a political risk consultancy, suggested the dangers for investors are significant.

"Republican intransigence over increasing the debt limit and Democratic overconfidence that they will be able to pressure Republicans into doing so is creating unusually high risks of the U.S. crossing into a technical default on its debt sometime in late October," they wrote in a note on Thursday.

"Congress will at some point increase the debt ceiling, but it may require the pressure of a technical default and market sell-off to get there," the Eurasia Group team also said.

"Based on our analysis of the incentive structure of both sides at this time, we see that risk at 20%."

In fact, the market is finally starting to reflect the chance of a technical default - albeit still small - as short-term USA default risk spiked dramatically this week (NOTE in Oct 2015, USA 1Y CDS spiked to 40bps)...

Source: Bloomberg

For now, it seems everyone is just full of Fed liquidity-based optimism...

The S&P 500 fell back below its 50DMA after an initial bounce (something we haven't seen recently on these bounces as we note that ~30% of SPX gamma expired at today's open and 60% of SPY, 35% of QQQ, and a very large set of stock options expired on the close)...

The Dow is back at/below its 100DMA and Small Caps are hovering around their 50DMA.

VIX spiked back above 20 as hedgers piled in ahead of next week's FOMC...

Both Defensives and Cyclicals were lower this week - modest rotation midweek, but by the close, pretty systemic selling...

Source: Bloomberg

The Dollar surged further today, extending the week's gains to erase all losses from Jay Powell's Jackson Hole speech...

Source: Bloomberg

Treasury yields were all higher on the week, led by the belly (5Y +6bps, 30Y +0.5bps)...

Source: Bloomberg

10Y Yields spiked further to a key resistance level this week...

Source: Bloomberg

And 10Y Yields broke back above their 200DMA...

Source: Bloomberg

30Y Yields spiked up to their 50DMA today and found resistance...

Source: Bloomberg

Cryptos were broadly higher on the week with Bitcoin and Ethereum up around 5%. Litecoin ended the week up 4.5% after the Walmart partnership fake news spiked it 35% on Monday...

Source: Bloomberg

Big gains in the dollar this week weighed on 'some' commodities with copper and PMs down but the energy complex rallied with crude up significantly...

Source: Bloomberg

Gold fell back below $1800...

Silver was clubbed like a baby seal back below $23...

WTI rallied back above $72 this week...

And Nattie exploded higher recently, only to tumble today...

Finally, amid all that vol in commodity-land, CPI this week, and today's UMich inflation expectations, Stagflation remains the big worry...

Source: Bloomberg

Get back to work Mr.Powell!

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