Weekly Market Update for May 19, 2023

by Jim Ulland

The Congressional negotiations on raising the government’s debt ceiling went into a pause Friday, which dampened the market’s enthusiasm. President Biden, who is in Japan, returns to a pre-scheduled news conference on Sunday. I am sure the President would like to announce an agreement at the news conference. Time is already running short to reduce any agreement to writing and then pass it through the House and Senate, prior to the government running out of money. If an agreement is reached during the weekend, the market will likely spike higher on Monday with this uncertainty resolved.

The second major challenge facing the market involves the Federal Reserve. Will they raise interest rates at their June 14th meeting, or will they officially pause to see what economic damage they already have done? Many economists say it takes six months for a rate hike to work its way through the economy. One of the Fed Governors thinks it takes twelve months to see the full negative impact. The argument for a pause in raising rates is to give time to assess the impact of the ten raises the Fed has implemented.

The Fed says it will be influenced in its interest rate decision by economic data. There will be plenty of that next week including new home sales, several manufacturing indices, a revision to Q1’s GDP, Durable Goods Orders, and the Michigan Consumer Sentiment Index. Each release will be analyzed to see the impact on economic growth. Some of the news will be market-moving.

Lower interest rates are important to restoring stability in the financial services sector. This past week saw some stability return and the preferred stock in our Intelligent Fixed Income strategy shot higher. An interest rate pause will further this recovery. Fed data shows that bank deposit outflows have normalized. There still is some shifting of deposits from banks to US Treasuries, which are paying over 5% for 2-month, 3-month, 6-month, and 12-month maturities. Our US Treasury strategy has benefited from this flow. Treasuries give a handsome return on funds that might otherwise be lingering in cash or lower-paying CDs.

During the week, large technology companies continued to lead stocks higher. Cash can profitably be allocated to stocks which have substantially outperformed fixed income so far this year. Contact us if you would like a discussion.

Next week, there are a few remaining corporate Q1 earnings to be reported: Lowe’s, Costco, Intuit, and NVIDIA (already up more than 100% this year) are among them. The market had a calm week evidenced by the S&P 500 being +1.65% and the NASDAQ +3.04%. Monday the S&P 500 was +0.30%, Tuesday -0.64%, Wednesday +1.19%, Thursday +0.94%, and Friday -0.14%. The weekend is here. Don’t forget to plant your garden. Even in MN, we no longer expect frost.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

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