Suspended Ceiling

The focus last week continued to be on the debt ceiling, as negotiations turned to voting, and President Biden signing the bill into law over the weekend! The outcome is a bill that largely meets in the middle, while suspending the debt ceiling until 2025. One concession was a hard stop to student loan payment pauses at the end of August, although all eyes will look to the Supreme Court for the future of student loan forgiveness. Stock indices rallied last week, with the S&P 500 up +1.83%, the Dow Jones rose +2.02%, and the NASDAQ climbed +2.04%. Bonds rallied to a lesser degree only rising 0.53%. Alternatives continued to be mixed, with Bitcoin futures up 2.37%, gold roughly flat (up 0.05%), silver up 1.45%, while oil fell -1.28% due to ongoing recessionary concerns.

As mentioned, the largest news last week for markets was debt ceiling negotiations and party rallying. The bill cleared the House and then the Senate to go to President Biden’s desk for a weekend signing. With the debt ceiling a non-issue until after the 2024 elections, the next issue looks to be the state of student loans, forgiveness, and repayment, as a ruling is expected from the Supreme Court in June.

The Memorial Day holiday-shortened week had less data than usual, but still brought important updates. Payroll data ended the week and set the stage for a less certain June FOMC meeting. Employment data came out with a very strong Nonfarm Payrolls print of 339k, a 186.5k surprise over the consensus estimate and stronger than 2019 payroll prints. Unemployment printed higher than expected, but still in line with a tight labor market at 3.7%, which was a tick up from the prior print of 3.4%. Jobless claims (initial and continuing claims) came in line with expectations reinforcing the narrative of a strong labor market.

In the week ahead, economic prints are light. Wednesday will bring consumer credit numbers, which shows non-real estate credit extended to individuals, and Thursday is slated to bring wholesale inventories. Next week brings the potentially pivotal FOMC meeting to set the tone of proceed, pivot, or pause regarding interest rates. Markets split, with roughly 2/3 pricing in no hike and 1/3 pricing in a 0.25% hike.

In geopolitical events, India endured a train crash killing near 300 people and injured over a thousand, as a signal error caused the train to go on the wrong set of tracks. The tragedy is raising concerns over the need to modernize rail in a nation highly dependent on trains for travel. As the war in Ukraine continues, infighting on the Russian front grows with Wagner group mercenaries (Russia) capturing Russian Lt Col Roman Venevitin after he had allegedly ordered his troops to fire on the mercenaries.

As markets weigh employment news versus the current inflation narrative and look to see what mandate will drive FOMC policy, we continue to walk ahead as new information emerges. We expect AI and “the cloud” to continue to be driving themes in markets, although news of Saudi Arabi announcing a surprise million barrel daily cut to oil production seems poised to focus news on energy markets. As we move from a theme of negotiation in a relatively quiet week prior to the Fed Meeting, it’s a great time to reflect on how we interact with others and the importance of doing so with integrity. “Honest scales and balances belong to the Lord; all the weights in the bag are of his making” (Proverbs 16:11).

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