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Last week was largely focused on debt ceiling negotiations and Fed guidance heading into June. Stock indices rose last week breaking the lower week-over-week trends, with the S&P 500 up 1.65%, the Dow Jones up 0.38%, and the NASDAQ up 3.04%. Meanwhile, bonds sold off, with the Bloomberg Agg ending down -1.32%. Alternatives continued to be mixed, with Bitcoin futures up 1.51%, gold down -1.89%, and silver down -0.39%, while oil rose 2.36%.
Front and center in market movers and the national conversation last week were negotiations over the debt ceiling. Mid-week reports showed progress on negotiations, while Friday brought negotiations to a standstill. As the nation continues toward the unknown default date, markets are becoming increasingly concerned about the risks of the United States Government defaulting. Credit rating agencies are preparing for a default by the United States Government, while markets are hopeful for resolution.
Economic Indicators last week were light, with jobless claims, the Empire State Index, retail sales, and housing starts being revealed. The Empire State Index (SA), which represents manufacturing conditions, came in at -31.8. A value above 0 represents economics expansion. Jobless claims, both continuing and initial, came in under consensus expectations in a pullback from recent trends. Retail sales were positive across the board but mixed versus estimates and growth slower than expected. Lastly, housing starts ticked up month over month, coming in at 1,401k, while the housing market faces headwinds from high interest rates against the continuing strong demand. In the week ahead, GDP and pending home sales are on Thursday, while Friday brings PCE, the favorite inflation indicator of the FED.
As uncertainty on FOMC policy has grown over the direction of future policy, more and more market attention has been drawn to “Fedspeak” to try and glean insight into the thoughts and direction of committee members. In the last week, we have seen volatility in rate expectations, as the debate on “Pause, Halt, Raise” has emerged, and any policy shift conveyed will shape the expectations for the rest of the year.
In geopolitical events, the conflicting factions in Sudan agreed to a week-long ceasefire following six weeks of violence to allow for humanitarian aid after pressure from the United States and Saudi Arabia. The war in Ukraine continues, as Russia made claims of capturing Bakhmut and Ukraine secured aid of roughly 70 F-16 fighter jets, a long-asked-for resource, to be delivered later in the year. In the United States, the Writers Guild of America strike continues into its fourth week, as negotiations focus on streaming, AI writing, and writer compensation. Notably, the last writer’s strike (2008) led to the rise of reality TV to fill the gap of scripted content.
As negotiations over the debt ceiling continue and Fed policy takes shape, we expect markets to be focused on the narrative and the continued uncertainty. We also expect to find more glimmers of policy drivers behind the coming economic datapoints, particularly among jobs and inflation. In the midst of all of these economic negotiations, decisions, and their effects, we are reminded of the suffering that is taking place all over the world and the decision in Sudan to allow humanitarian aid to reach those in need. Even in dangerous and conflicting places and with the busyness of life, God’s love, faithfulness, and generosity can be shared with the others. We pray these fruits of the spirit are evident in all of your dealings during the week ahead. “In the same way, let your light shine before others, that they may see your good deeds and glorify your Father in heaven.” Matthew 5:16
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