March is upon us, and what does that mean? The media's most recent obsession, the sequester, officially goes into effect. The market bounced back impressively from Monday's potent sell-off, giving the indication that investors weren't too worried about the looming spending cuts. It's hard to say how much the sequester factored into today's gap down (there was also weak data out of Europe and China that weighed on sentiment), but any notion that the market was terrified by today's deadline has been quashed by the bullish price action we've seen during today's session.
President Barack Obama today said the sequester is "not going to be an apocalypse," and the market seems to agree. Currently, the Dow Jones Industrial Average, Nasdaq, and S&P 500 are slightly positive, even though the president and top congressional leaders were unable to come up with an alternate plan to avoid automatic, across-the-board federal spending cuts this morning in an Oval Office meeting.
Obama told reporters today he could not do a "Jedi mind meld" to get Republican leaders to agree to increase tax rates for the highest earners. Senate Minority Leader Mitch McConnell said before the meeting there would be "absolutely no agreement to increase taxes," and House Speaker John Boehner said afterwards "the discussion about revenue, in my view, is over." The President didn't mince her words either, calling the sequester "dumb." Neither side is budging, and the loser once again looks to be the American people.
While Obama warned that the sequester will affect working-class Americans' jobs and salaries, especially in the defense sector, so far there does not seem to be panic in the market. Since the Summer of 2011, Washington has endured the bitter debt ceiling debate, which led to a credit downgrade that sent US market into a tailspin, the threat of government shutdown, and general federal inaction. The sequester seems somewhat tame compared to some of the previous crises, but it will be important for lawmakers to reach a compromise before the cuts really start to hamper what is already a fragile economic recovery.
The elephant in the room is the aforementioned debt ceiling. US debt is currently set to hit the ceiling again on May 19, and Fitch Ratings warned Wednesday and today that the United States could lose the agency's AAA credit rating if it is unable to reach another deal.
The financials were in the spotlight this morning as many stocks in the sector opened sharply lower. The Financial Sector SPDR ETF (XLF), after leading the market higher over the last six months, showed rare weakness on Monday's sell-off. The banks have bounced back well, though, during the session, tipping the markets hand that the sequester, at least right now, is nothing to panic about.
Apple (AAPL), which John Darsie talked about as a short set-up in today's Morning Call, is one of the day's biggest losers. The stock is currently weighing on the market once again, trading at around $434 after David Einhorn announced he is dropping his lawsuit that was aimed at forcing AAPL to release some of its cash reserves. The former tech leader is now at a critical support level, and tumbles further the low 400s could be tested. There is an open gap from January that seems like a magnet for the stock right now.
*DISCLOSURES: No relevant positions