The Dow Jones industrial index dropped sharply on Tuesday and could pull back further with economic fears.
US30 – Daily Chart
The US30 trades at 33,591 and has support ahead at 33,300 before opening the door to further losses.
US Approaching Debt Limit
According to Evercore Chairman Krishna Guha, investors are too relaxed about the debt ceiling right. Guha said traders need to be more concerned about the potential crisis from the US failing to repay its debts, where a market sell-off could push lawmakers into voting to lift the nation’s borrowing limit.
“It’s a very big risk event ahead,” Guha told CNBC. “Look, the market, I think, is approaching this right now as if this is a play where everyone acts their part but at the end of the day we don’t get a default.”
The US would hit its $31.4 trillion debt limit in January, with the potential that it could run out of money as soon as July if lawmakers don’t vote to raise the limit, according to the Congressional Budget Office.
US lawmaker Kevin McCarthy backed a bill to raise the debt ceiling by $1.5 trillion in exchange for tighter spending last week, but some of his party oppose the plan.
Meanwhile, US stocks were rattled by the problems with First Republic Bank, which announced a 40% drop in deposits after the SVB collapse. The pace of deposits slowed, but the bank could not see new deposits. The latest earnings announcement could worsen that situation if investors worry about the potential for another bank failure.
Finally, this week, US GDP growth will be spotlighted with an advanced look at the Q1 economy. Analysts are expecting a drop from 2.6% to 2%.
Traders could play on further negative sentiment to look for a test of the 33,300 level in the Dow Jones.
