 | AUTHOR: Jason Roque, CFP®, APMA®, AWMA® TITLE: Investment Adviser Rep – CCO TAGS: S&P 500, NASDAQ, Debt Ceiling, Chips, GDP, Rates |
Markets managed to eke out a win, but not without volatility. Are we through the storm or is there a beating ahead?
Monday S&P 500 0.02% | NASDAQ 0.50%
Monday was a light day from a movement standpoint. It appears that bets in one direction or another were being held back until the debt ceiling meetings were set for Tuesday.
Tuesday S&P 500 1.12% | NASDAQ 1.26%
Markets waiver on Tuesday as progress in the debt ceiling debate; it seemingly stalled. The NASDAQ was more broadly hit by the news because they have a higher sensitivity to interest rate risk. Services PMI came out strong–which is an important indicator of the health of the economy. The services sector makes up approximately 84% of economic production in the US.
Wednesday S&P 500 0.73% | NASDAQ 0.61%
The woes of Tuesday did not come to rest with the day. As a result, Wednesday carried a similar trade to Tuesday as focus remained on the debt ceiling. On the back of debt ceiling risks, interest rates have risen for the key 30-year fixed mortgage. This could bring fresh concerns to an already battered housing market.
Thursday S&P 500 0.88% | NASDAQ 1.71%
While market indices ended in the green for the day, it should be noted that was induced by a large move in semiconductors. This came as Nvidia reports earnings that outpaced market expectations substantially. GDP adjustments out on Thursday proved to be favorable as the reading for Q1 was revised up to 1.3% (from 1.1%).
Friday S&P 500 1.31% | NASDAQ 2.19%
Equity markets rose to close out the week. Led by bullish news in the chips sector as artificial intelligence continues to garner attention. Additionally, a debt ceiling deal was expected late in the day Friday, which bolstered sentiment.
Conclusion S&P 500 0.32% | NASDAQ 2.51%
The debt ceiling has been a focal point for several weeks as the deadline draws near. The risk of default has sent short-term interest rates up. A couple of points to consider:
- All rates have risen, which has adversely affected the 30-year mortgage. The housing market has already taken a beating on demand as the Federal Reserve Board (FRB) raised interest rates 5% over the last year to curb inflation. They do this by curbing demand.
- The debt ceiling debate is doing some of the heavy lifting for the FRB, resulting in reduced likelihood of a rate hike in June, but also continuing to damage demand in the housing market.
The good news is that the debt ceiling deadline is coming up… Hopefully, that is good news. Should a deal be ratified then rates should soften because of the reduced risk of default in the near-term. If however a deal is not reached, the beat down on bonds (as a result of rising rates) will continue. In turn, this will result in higher mortgage rates and more demand destruction.
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