Markets moved in sync last week with perceived movement in debt ceiling talks, weakening early in the week and then surging on news of progress. A solid quarterly report and guidance from a mega-cap technology company helped with enthusiasm. Overall, the markets were mixed, with the Dow Jones Industrial Average down 1.00%, while the Standard & Poor’s 500 gained 0.32%. The Nasdaq Composite index led, picking up 2.51% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, sank 2.92%.1,2,3
Stocks were weighed down for much of the week by stumbling debt ceiling negotiations, which appeared to reach an impasse at one point. Technology stocks, which have led the market this year, were under pressure as traders began to anticipate the possibility of rate hikes in June and July. Sentiment turned more optimistic after the release of an above-consensus earnings report and strong guidance from a mega-cap chip giant. The momentum continued into Friday as stocks surged on hopes of a debt ceiling agreement, undeterred by an inflation read that may induce the Fed to raise interest rates further.
The minutes of the Federal Open Market Committee (FOMC) May meeting reflected division among committee members over whether further rate increases were necessary, with more than half suggesting that they were ready to pause. Those members supporting additional rate hikes said inflation was moving too slowly toward the Fed’s two percent target inflation rate. The minutes also reaffirmed the Fed’s expectation of a recession beginning around the fourth quarter. In comments last Wednesday, Fed governor Christopher Waller manifested this division, saying that it was a toss-up as to whether rates should be raised, suggesting that he could support a rate hike in June or wait on voting for an increase until July’s meeting.
1. The Wall Street Journal, May 26, 2023, 2. The Wall Street Journal, May 26, 2023, 3. The Wall Street Journal, May 26, 2023