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June 2023 Market Commentary: Making Sense of the Debt Ceiling and Fed Actions

May Recap and June Outlook

Throughout May, everyone was talking about the "debt ceiling." This is the limit on how much the U.S. government can borrow. By the end of May, an agreement was reached. The limit on borrowing was suspended until January 2025. Also, the government agreed not to increase spending on non-defense stuff in 2024 and to only allow a tiny increase (1%) in 2025.

These talks about the debt ceiling were a big deal for the stock market. Everyone was wondering how this would affect government spending. At the end of May, we got some notes from a meeting of the Federal Reserve (or "the Fed"). These notes showed a split: some people at the Fed think we don't need to worry about inflation too much anymore, while others think it's still a problem that needs to be tackled with higher interest rates.

Now that the debt ceiling talks are over, everyone is focusing on the Fed again. It looks like the Fed might not increase interest rates at its meeting in June. This is to give the economy some time to adjust to the previous increases.

We still don't really know how the government spending less money and the U.S. Treasury issuing more bonds will affect things.

Now, let's look at some numbers:

  • In April, prices were 4.9% higher than they were a year ago.

  • The economy (GDP) grew by 1.3% in the first quarter of 2023.

  • In May, 339,000 jobs were added, which is the most in a month since January.

So what does all this mean?

The Fed is trying to slow down the economy to keep prices from rising too fast (that's inflation), but it's been a bit of a struggle. The economy is still growing, and people are still spending money, despite higher prices and interest rates and less savings.

From the Fed's meeting notes, we know that almost everyone agrees on two things: that if banks get into trouble and it becomes harder to borrow money, it could slow down economic growth more than the higher interest rates already have. And that inflation, or rising prices, is still the main thing they're keeping an eye on.

Equity Markets in May

  • The S&P 500 was up 0.25%

  • The Dow Jones Industrial Average fell 3.49%

  • The S&P Mid-Cap 400 decreased 3.36%

  • The S&P Small-Cap 600 decreased 1.94%

Source: (Source: S&P. All performance as of May 31, 2023)

Only three of the eleven S&P 500 sectors saw increases, with Information Technology leading the pack, adding 9.29% for the month.

Bond Markets

The 10-year U.S. Treasury ended May with a yield of 3.64%, up slightly from April's 3.43%, while the 30-year U.S. Treasury ended the month at 3.85%. The Bloomberg U.S. Aggregate Bond Index returned -1.08%.

The Smart Investor

With the debt ceiling resolved, the Treasury can resume normal operations. However, the path of the Fed remains unclear, and it's likely we'll see continued higher interest rates. This can be beneficial if you're considering moving money from cash to money markets or CDs. But if you're carrying a credit card balance or planning a major purchase requiring a loan, these higher interest rates could pose a challenge.

Here's what you should focus on:

  • With the likelihood of increased volatility, make sure your portfolio is diversified to provide some stability.

  • Although progress on inflation is being made, it's not ending soon. Plan your spending accordingly.

  • Keep in mind the silver lining of inflation: HSA limits have been increased. This is a triple-tax-advantaged way to save for the biggest cost in retirement - healthcare.

This year marks a significant shift from the old environment of low rates and a rising tide that lifts all boats. It's more important than ever to plan ahead, ensure that you're on track, and understand your options. This is the best way to keep your financial goals within reach. Your financial security and future prosperity are what matter most.


The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA

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