In Markets "In a Nutshell"

Markets “In a Nutshell” for May 15, 2023

Investment Week at a Glance

Stocks finished lower for the week.  The Dow Jones Industrial Average fell 1.10%, the S&P 500 was down 0.3%, and the NASDAQ rose 0.40%. Foreign stocks (MSCI EAFE) were down, falling 0.9%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 3.47%.  (Data source: Wall Street Journal)

Inflation Moves Lower

CPI data for April was released last week and came in 4.9% year over year, the first time in two years it has been under 5%. Although 4.9% is still high and still a ways away from the 2% target of the Fed, we are heading in the right direction. The next Fed meeting is not until mid-June so they will get to see the May CPI report before deciding on what to do with rates. If the trend continues and inflation slows down, it is expected that there will be a pause in rate hikes. The market is currently pricing in a pause and then rate cuts later this year as the economy begins to slow and worries in the banking sector persist. If the Fed does pause, this may be seen as the end of inflation being the #1 market worry as it has been for the past 18 months.

Debt Ceiling Concerns

The new worry for markets, as inflation begins to fade, is the looming debt-ceiling date of early June. Although it captures headlines this is nothing new for Congress and those in Washington D.C. The debt ceiling has now been raised 20 times in just the past two decades, and many of those times a deal has been struck in the eleventh hour. While this could cause some volatility in the short term for markets as it has in past years, long-term debt-ceiling debates and deadlines do not have an impact on the market. In 2011 the country came closest to default and markets dropped 10% as Standard & Poor’s downgraded U.S. credit rating from AAA to AA+. Despite the sharp decline, by the end of the year markets had made up all the declines in just four months.



Since 1960, how many times has Congress increased or suspended the debt limit? (Scroll Down for Answer)

  1.     51
  2.     58
  3.     64
  4.     78










































Answer below.



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4.   78 times.  Although the debt limit may be the main topic of news and markets, it is not uncommon for the ceiling to be raised. The real worry is what would happen if Congress failed to act as we have never had a time where the U.S. defaulted on its debt.