Market Commentary 05/31/23

Key Takeaways from Last Week

• On Saturday, House Republicans and the White House have reached a tentative deal to raise the nation’s borrowing limit and avoid a debt default.
• The deal includes historic reductions in spending, no new taxes or government programs, and reforms on government assistance programs.
• The proposed legislation will need to win enough votes in both the GOP-controlled House and Democratic-held Senate to raise the U.S. debt ceiling in time to meet a June 5 deadline, so this is far from a done deal.
• On Friday, the Treasury Department signaled that there is extra time available before a potential US default, with payments on US debts expected to be made up until June 5th.
• This extension gets Treasury past a critical June 2ed date for Social Security payments.
• The Dow ended the week lower despite a Friday rally as investors anticipate a debt-ceiling agreement to prevent the U.S. from defaulting on its debt payments.
• Stronger consumer spending and inflation data increase the likelihood of a June rate hike despite the growing optimism of a breakthrough in debt-ceiling talks.
• Tech and consumer discretionary sectors benefited from gains in big tech companies and semiconductor stocks.

The Dow Jones ended the week in the red despite rallying on Friday, as negotiators in Washington appear closer to a breakthrough in debt- ceiling talks.  

On Saturday, House Republicans have reached a tentative deal with the White House to avoid a default on US government debt by raising the nation’s borrowing limit. The deal and reduce the amount of new spending on the IRS.  The proposed deal also does not include any new taxes or government programs. Additionally, the proposed deal seeks to raise the debt limit and cap federal spending for two years through 2024. President Biden urged House Democrats to vote for the legislation.  However, the legislation will also need to win enough votes in the GOP-controlled House and Democratic-held Senate to raise the US debt ceiling in time to meet a June 5 deadline.

The countdown to a deal will continue to be closely watched as the Treasury Department has extended its estimate of being able to make payments on US debts until June 5th, which is four days longer than its previous estimate. This extension allows the department to make Social Security payments past the critical June 2 date.