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Weekly Market Update for May 26, 2023

by Jim Ulland

Members of Congress will not have to rush back to DC from their Memorial Day barbeques to vote on a debt ceiling and spending restraint bill, since the Treasury just announced it has enough money to last until 6/5. Apparently, every last penny will not have been spent by 6/1. I expect the negotiators will stay in DC this weekend and reach an agreement. The market could be enthusiastic next Tuesday as a result.

This week the market enthusiasm was provided by NVIDIA, a maker of complex chips, computer platforms, and other data processing units used in computer games, cloud storage, and artificial intelligence (AI). Not only was Q1 great, but the company forecast that sales would be 50% higher than analysts’ forecasts for Q2. NVIDIA stock rose 24% on the news. AI is the rage and NVIDIA is a major supplier for AI systems. They and other Tech stocks have led equities higher so far this year. The QQQ index, representing the largest 100 Tech stocks, is up 31%. The long-term out-performance of technology is one reason we tilt our equity strategies towards these growth companies.

A week cannot go by without the Fed dominating the business news. This week was no different. The Fed’s next meeting concludes on 6/14 with an announcement on interest rates. Either they will pause their rate raising and the market should spike higher, or they will raise rates by another 0.25% and the market will be disappointed. The Fed is trying to slow the economy, while most think they have done enough already. The Fed’s voting members seem to have a mixed view. Treasury Secretary Yellen says the stress in the banking sector is sufficient to restrict lending and slow the economy. She suggests that another rate hike is unnecessary. Banks are going to make fewer loans, and those they do make will have more restrictions. Fed Chair Powell seemed to agree, but left his language open to numerous interpretations. Before 6/14, we will have the May New Jobs report on 6/2 and the CPI for May on June 13, both of which will be factored into the Fed’s decision.

This past week, the financial services sector continued to heal. Banks borrowed less from the Fed. There were no deposit runs or bank failures. In fact, bank stocks and their other publicly traded securities showed some recovery. The most fragile banks had the biggest stock price increases. An interest rate pause on 6/14 should further this recovery. Other economic news was mixed, with some inflation indicators slightly higher than expected and some lower.

Next week will be all about the debt ceiling negotiations. It is only somewhat interesting that Congress seems to work the hardest when it is about to run out of money. The markets had a relatively calm week evidenced by the S&P 500 being +0.32% and the NASDAQ +2.51%. Monday the S&P 500 was +0.02%, Tuesday -1.12%, Wednesday -0.73%, Thursday +0.88%, and Friday +1.30%. The market will be closed on Monday for Memorial Day. Take a three-day break from the news, it will all be here Tuesday when we return from the holiday.

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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