What Now?

The S&P 500 Stock Index, our preferred market gauge, is at 4134 today & is up 7.72% YTD. This gain is mainly from the big tech names Microsoft, Apple, Meta, Google etc. which were all down big in 2022. The laggards for 2023 are financials (think liquidity-driven deposit outflows for regional banks) energy, health care & utilities all of which outperformed in 2022.

You may wonder with all the negative headlines how on earth can the S&P 500 be up almost 8%? The biggest of all news stories is the debt ceiling limit and the risk of the U.S. defaulting on debt payments. No one wants a default because it could create unknown volatility, an economic slowdown & de-risking of portfolios by large investors. The good news is that historically volatility in the financial markets tends to be short-lived and provides a chance for long-term investors to buy on the cheap.

The fact of the matter is since 1985 the US has had to take extraordinary measures 11 times to avoid default and most times it was an agreement made at the last minute. We don’t exactly know when the last minute will be, Secretary of the Treasury Janet Yellen has said it could be as early as June 1 which is 2 weeks away. Let's hope both sides of the aisle get serious and get the job done before too long.     

As far as the fundamentals Q-1 earnings, while slightly negative, were better than expected as were forecasts for Q-2 and in some cases the balance of 2023. It appears that the Federal Reserve has hit the pause button on rate increases and will take a wait-and-see attitude about their timeframe for getting inflation down to the 2% target. The good news is CPI has decreased for 12 straight months.          

So, as usual there are headwinds and tailwinds, but the economy continues on pretty firm ground, inflation is coming down and the employment picture is quite strong. The latter point is critical as the consumer continues to make up 65% of total US economic activity.