- Earnings season and company guidance
- US debt limit
1st scenario is very common and happens 4 times every year (since earnings season comes 4 times every year), market direction is decided based on company earnings & guidance. Typically the earnings season is over in 3-4 weeks, major companies release earnings & guidance early into the season and by 3rd-4th week market pretty much decides on its direction. Based on this information, market should decide its direction by 1st-2nd week of August (end of earnings season).
2nd scenario is very specific to current US economic situation and if not acted upon will crash the markets. US Government is close to reaching its US Debt Limit (US money borrowing power). Think of this as reaching your credit card limit after which you cannot borrow any money from your Credit Card. In this case, the debt limit is imposed by US Congress. Of-course, US Congress is the one who can raise the debt limit as well, which means the House and Senate has to unanimously come to an agreement to raise the debt limit.
How this affects our markets?
- If US debt limit is not raised then US as a nation will default on its payments (interest payments on its bonds/etc. owned by other investors, nations, etc.) which will reduce investors confidence in US economy, money will start flowing out of the equities which in turn will bring down our markets as everyone will try to SELL and get out.
- If US defaulted on its payment then naturally our treasury bonds are not attractive investment for investors, which will lead to a sell off in US treasury bonds as well.
- Effects: Market crash, US currency down big time, economic recession in full gear, higher unemployment rate, etc.
Sounds very scary! YES it is scary and we cannot do anything about it. But don't panic, most likely US Congress (our politicians) will come to an agreement this or next week about raising our debt limit which will help markets to move up quickly executing another rally.
I am Confused!!!
So shall we get out of the markets and wait for the rally? or shall I remain invested and exit when it really happens!
From BPNYA current chart below, we should be invested for now and if market fails to maintain its uptrend then we can always get out of the markets once we get the SELL signal.
Remember: Preservation of capital is our top most priority with balanced risk.