Wall Street Isn’t Buying Obama’s Doomsday Scenario

obamadrivingMarkets sold off sharply yesterday as the rhetoric surrounding the looming debt ceiling escalated. The S&P 500(INDEXSP:.INX) dropped 1.2% to 1,655; the lowest close in more than month. Despite the worst single day drop since the current sell-off began, most traders remain skeptical that the similar debacle in summer of 2011 will play out. Traders and investors who ran for the exits when the S&P 500 dropped 18% over three harrowing weeks in late June and early July of 2011 missed a huge subsequent rally. It was a hard lesson, still fresh in the mind of investors. If DC wants to get investors to bail they’ll have to do better than what we’ve heard over the last few weeks.

Jon “Dr. J” Najarian of OptionMonster points to the iPath S&P 500 VIX Short Term Futures TM ETN(NYSEARCA:VXX) as evidence of Wall Street’s apathy. Despite gaining more than 4% in trading on Tuesday the so-called “fear index” finished at 20.34. For comparison’s sake, in the summer of 2011 the Vix spiked to over 25. Going into the fiscal cliff at the end of 2012, the Vix’s closing peak was 21.8.

The situation is fluid but for the most part “traders think this is just political theater likely to end in a lousy deal,” Najarian says. In other words, Wall Street is betting this time isn’t different from the last.

You can see the full “Breakout” interview below:

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