So warns a team of UBS strategists. Although unlikely, the S&P 500 could rise 20% to 3,400 points if the United States formally defaults and delays all payments beyond the principal payments for a week, according to a team led by economist Jonathan Pingle. will fall.
In that case – one of the four mentioned by the bank – the country could lose at least 265,000 jobs and have an impact of 0.3 percentage points on gross domestic product (GDP). He S&P 500 It will remain depressed before reversing slightly in 2023, ending near the 3,700 mark.
This figure is well below the 3,800-4,200 levels, at which the benchmark remained stuck throughout the year. The gauge was testing the upper end of that range on Friday, amid optimism that debt ceiling talks were making progress. In the most bearish scenario of the bank, s & P It will end the year near bearish lows estimated by strategists between 3,400 and 3,500 points.
However, the default is not in the base case of the bank. The United States will raise the debt ceiling in the near term with minimal fiscal drag., strategists wrote in a note on Friday. The team’s year-end target for the S&P 500 index is 3,900, which is lower than analysts’ average year-end target of 4,017.
The odds of exceeding Date X—the point at which the US government loses the ability to meet all of its obligations—are one in four.
Although fears of a credit-limiting stall have increased options volatility and constricted the short end of the Treasury curve, stocks have remained largely unaffected.
He S&P 500 The implied volatility level for the Citigroup basket of companies whose sales are most dependent on the government is set for its best week since late March, and has fallen since the start of the year.
On Friday morning, Speaker of the House of Representatives Kevin McCarthy indicated that the two parts of the government could reach an agreement later this week to avoid a catastrophic US default.
the worst has come UBS This would be marked by a one-month delay in all payments from the United States. This would shrink GDP by an additional 0.8 percentage points, result in the loss of 700,000 jobs, and cause stocks to decline “immediately” by 30%, though they stress that this scenario is “highly unlikely.”
“At the moment, we see a reasonable chance, around 50%, that Congress will pass an extension in the short term. However, since both parties have ruled out this possibility, our assessment may be seriously wrong.”