James Bullard, President of the Federal Reserve Bank of St. Louis, has suggested that interest rates could be raised from the current 5.25% all the way up to 5.75%, but this prospect seems to have left the markets unperturbed. Recall that back in 2018, the mere anticipation of rate hikes was enough to cause a significant drop in the indices. Now, however, the effect is not the same.
Could the markets' indifference be linked to President Biden's remarks about progress in negotiations over the debt ceiling? Possibly. But there's another factor at play – corporate buybacks. In 2022, total buybacks amounted to a record $923 billion, up 5% from 2021. Of this sum, the top 20 companies accounted for $345 billion, or over 37%, a figure significantly higher than the ten-year historical average of 25.3%.
Overall, there is a sense that market participants are in a holding pattern. Investors can see that every attempt to force the market downward ends in failure, and they act accordingly. I can't rule out the possibility that this market stability is the result of manipulation by major players, as the drop in volatility feels somewhat artificial.
When will this equilibrium be disrupted? It's quite possible that it will happen after an increase in the debt ceiling. As the saying goes, “buy the rumor, sell the news…”
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