Futures are firmer again on Friday. And, yet again, the S&P 500 SPX is eyeing the top of the range — 3,800 to 4,200 –with which it has been flirting for several months.
Bears may point to intermittent bursts of banking angst as a reason for caution. But according to Jitesh Kumar and Vincent Cassot, derivative strategists at Societe Generale, the turmoil in that corner of the financial sector, which began in March, has in fact not only reduced broader stock market volatility, but also helped lift the benchmark index.
Secondly, the bond markets have reacted to the turmoil by pushing yields lower on expectations that the banking problems nevertheless will crimp credit and reduce the need for the Fed to keep interest rates higher for longer. Indeed, Kumar and Cassot calculate that the financial sector over this period is responsible for a loss of 1.21% in the S&P 500, but technology has provided a 2.45% gain.
“While large-cap companies can afford to wait for better conditions and rely on their cash piles to finance activities, smaller and weaker companies often do not have that luxury and are more likely to need to come to the market and pay higher costs/face tighter conditions,” say Kumar and Cassot. The buzz President Joe Biden’s Friday meeting on the debt ceiling with congressional leaders has been postponed until next week — but the market seems ok with this. For now.