The Debt Ceiling debate captivated both investors and the markets over the past few weeks. In classic ‘Washington Style’ President Joe Biden and House Speaker Kevin McCarthy reached an 11th-hour compromise last weekend. That bill passed the House of Representatives on the evening of May 31st and is now headed to the Senate for final approval. If passed in a timely manner, the U.S. will beat the June 5th self-imposed deadline, which would both avoid default on government-issued bonds and continue payments to federal retirees and Social Security recipients.
With an apparent fix to the Debt Ceiling on the horizon, market attention will likely return to the economy and the Federal Reserve (the Fed.) The economy continues to show resilience: consumer spending for the month of April rose 0.8% month-over-month, beating expectations.1 Outflows from regional banks have also stabilized, suggesting confidence is returning to the banking sector.2
May’s Jobs report is scheduled to be released at the end of this week. April’s numbers surprised most economists – the 253,000 jobs created last month exceeded expectations and showed a significant increase over March’s number of 165,000. May’s unemployment rate dropped to 3.4% -- the lowest level since 1969.3
On the inflation front, consumer prices rose slightly higher between March and April, reversing the recent trend of inflation moderation. The Personal Consumption Expenditures Price Index (the Fed’s preferred measure of inflation) rose to 4.4% in April, up from 4.2% in March.4
Official minutes from the Fed’s May meeting show officials divided on whether another interest rate hike is needed. While some believe the current economic slowdown removes the need for another hike, others suggest another increase is necessary. The markets are currently assigning a 69% probability for an interest rate increase.5 We’ll have an answer at the conclusion of the Fed’s next meeting, scheduled for June 13 – 14.
Reviewing returns for the second half of May, the markets posted mixed returns. The Dow Jones Industrial Average (the Dow) closed modestly down while the S&P 500 grew slightly and the NASDAQ continued its strong run. As of the close of the market on May 31st, the Dow was down 440 points (1.32%), while the S&P 500 grew 44 points (1.05%) and the NASDAQ Composite Index (NASDAQ) enjoyed a gain of 570 points (4.61%).
1,2,5 www.am.jpmorgan.com “Weekly Market Recap: Week of May 29, 2023” May 29, 2023
3,4 www.jhinvestments.com “Weekly Market Recap; week ended May 26” May 29, 2023
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