Stocks rise as lawmakers continue debt ceiling talks to avoid a default

Yahoo Finance markets reporter Jared Blikre examines the stock and treasury market action as the debt limit crisis continues to unfold, while also looking at how the U.S. Treasury is forecasting different scenarios in case of a default.

Video Transcript

SEANA SMITH: Jared is keeping a close look at some of the movements that we are seeing in yields today when it comes to treasuries, as we do count down to what hopefully will be a deal this week.

JARED BLIKRE: Yes, I mean, we're tracking two huge themes in the market right now. One is the debt ceiling. The other is this incredible bifurcated market that we have, where tech is just exploding at the risk or at the cost of everything else going down.

Now, here's what's happening this week. Just want to show you this week's price action. For the Dow, it's going to be down about 1%. Then you take a look at the NASDAQ, it's up 2% today. It's going to be up over 2 and 1/2 per cent for this week. And the NASDAQ 100, by the way, is going to be up over 3%.

So this doesn't happen very often, where you had the NASDAQ 100 up so much, over 3%, and the Dow in the red. It's only happened three times since the bear market began last year. And then you'd have to go back almost 20 years to get a cluster of signals like that during the dotcom bubble and bust.

So here is the NASDAQ 100 real quick. Then we're going to get over to the debt ceiling. But I just want to show you the performance on the left side of the board. Nvidia up 25% over the trailing five days. Alphabet up a little bit. Microsoft up 4%. But you take a look at the equal weight this week. Huge outperformance on the top row. Marvell up 43%.

But then all these staples that hedge funds have been rushing into, guess what? Those are getting whacked this week. So very much the pain trade is on and a lot of frustration for a lot of traders, not just retail, but institutional.

Now, let's talk about the debt ceiling. Here is the headroom under the debt limit that the US Treasury has. And this is a Goldman chart, and they have three scenarios. The purple line is the central. Then they have the upside scenario, which is a little bit rosy, and the downside, which is a little bit pessimistic. But what you want to watch for are these lines hitting the zero bounds.

So, for instance, the orange line, the pessimistic scenario has a Treasury running out of room by about 6/6, that's June 6 next week. And Congress would have to act before that, well before that in order to get ahead of it.

And even if things go well, the central scenario, we would run out of money by 6/9 of next week. And then there is no scenario where the upside breaches that. But you take a look at what happens. We get some tax receipts in the middle of the month. That could help the Treasury out by the end of the month. Even the central is back down to the zero line, where we would have to invoke extraordinary measures.

Now, I also want to show you what this has been doing to the T-bill market. These are very short term bills. And this is the interest rate right here. And you can see, 3.2% for a bill maturing, basically, early next week and then 6.4% for just a few days later.

Why is that happening? This all has to do with the debt limit and also people do not want to hold a lot of this paper that may be coming due after the Treasury runs out of money. So all of this is-- excuse me, all of this is decreasing the amount of leverage that's available for all these side bets in AI.

SEANA SMITH: Certainly, very important year to keep an eye on. All right, Jared Blikre, great stuff. Thanks so much.