JPMorgan strategist Marko Kolanovic said that the impasse with the US debt ceiling - along with the already existing threat of recession - is another negative factor for the prospects of stock markets. More broadly, Kolanovic said equities appear disconnected from bond markets and softening economic data, in addition to debt-ceiling risks.
“Undoubtedly, the serious sale of risky assets due to the problem with the US debt ceiling in August 2011 was intensified by the debt crisis in the eurozone. We believe that there may be at least a moderate fall in stock markets if the problem with the debt ceiling is resolved, as in August 2011,” Kolanovic said.
President Joe Biden expressed confidence that a deal could be struck on time ahead of an expected meeting with congressional leaders later on Tuesday. However, Republican House Speaker Kevin McCarthy said the two sides were still far apart.
Meanwhile, Mike Wilson of Morgan Stanley said that the problem with the debt ceiling is unlikely to be solved without some short-term volatility. BlackRock Investment Institute experts also expect a potential debt showdown to trigger renewed volatility.