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Last week was largely focused on the debt ceiling and abating inflation. Stock indices generally fell last week, with the S&P 500 down -0.29%, the Dow Jones down -1.11 %, and the NASDAQ up 0.40%. Bonds sold off, due to yield curve flattening. The Bloomberg Agg ended down -0.26%. Alternatives also showed weakness, with Bitcoin futures dropping -11.05%, gold down 0.25%, silver retracting 6.85%, and oil falling 1.82% for its fourth week down. Opposed to the broad market weakness, mega cap companies saw inflows following AI hype, a broad feeling of “it could have been worse” earnings, and a slight move to safety.
Broad concern continues in markets over the current Debt Ceiling impasse, where the Republican House and Democratic Senate have been unable to come to an agreement on terms to increase the debt ceiling from its current limit of $31.4 Trillion. For context, the debt ceiling was created by Congress in 1917 to set a maximum amount to which the US Government can borrow, and it has been raised 79 times since then. Currently, we hit the debt ceiling in January 2023 and have seen the US Treasury using extraordinary measures to stay below the limit. If a resolution is not reached by the “X Date” (an uncertain but fast approaching date when the limit is reached), there are fears of the US Government defaulting on its debt and/or the US Government shutting down, as it will not have appropriated funds. Either of these outcomes could shake both domestic and international markets. As negotiations and the ebb and flow of government spending and revenue continue, we expect the uncertainty to weigh on markets.
Economic data last week focused on inflation, with April CPI and April PPI both dropping largely inline with consensus. April Core CPI SA M/M (Seasonally Adjusted, Month/Month) came in at 0.40% vs 0.30% consensus estimate, while headline CPI SA M/M came in at consensus estimate of 0.40%. PPI followed with Core PPI, SA M/M, coming in at consensus estimate of 0.2%, while headline PPI, SA M/M, came in at 0.2% vs a consensus estimates of 0.30%. Thursday also saw the weekly unemployment data printed with new and continuing claims ticking up from the prior week to a year and a half high. The continuing narrative of a June “pause” in Fed policy was supported by the economic reports, although, as inflation cools, more weight might be given to employment weakening and attempting to find a floor for interest rates to safely fall to.
In the week ahead, the spotlight on the economic calendar is Tuesday’s Retail Sales numbers with the consensus estimate seeing a modest uptick in the 0.90% estimate (SA M/M). The week continues with housing data, as housing permits printing Wednesday and existing home sales on Thursday. Overall, a fairly modest week on the economic calendar. As Earning Season is wrapping up, this week does bring a bagful of retail results such as Walmart, Target, and TJ MAX. Investors will be following retailer forecasts for the remainder of the year and will adjust their economic outlooks accordingly.
In geopolitical events, Turkey held elections on Sunday, with incumbent Tayyip Erdogan in the lead but not securing a majority of the vote. A runoff election will be held between Erdogan and Kemal Kilicdaroglu on May 28. In the war in Ukraine, military aid has been arriving by the billions, as Germany pledged a $3 Billion package and the UK delivered Storm Shadow cruise missiles for counter offensive actions. In the US, Title 42 ended this week, which had curbed migrant crossing at the Mexican Border since the onset of COVID (March 2020). There were fewer migrants than expected after the expiration, but there has been an increase of asylum seekers.
Markets were weighed down on government uncertainty surrounding the debt ceiling, but saw bright spots in Mega Cap tech as AI offers opportunity to redefine the tech sector. As politicians debate and markets react, this weekend also brought us a time to celebrate Mother’s Day. As we reflect on the enduring love of mothers everywhere, we are reminded of His love. “As one whom his mother comforts, so I will comfort you; you shall be comforted in Jerusalem” (Isaiah 66:13).
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