Week in Review: May 26, 2023

May 30, 2023

Recap & Commentary

U.S. equity markets ended the week little changed as investors continued to take a wait-and-see approach to debt ceiling negotiations unfolding in Washington. On Sunday, President Biden and House Speaker McCarthy reached an agreement, detailed in a 99-page bill, containing numerous provisions. Chief among them, the deal suspends the debt ceiling until January 2025 in exchange for limiting government spending. More specifically, the bill would keep nondefense spending roughly flat for fiscal year 2024 before increasing it by ~1% in fiscal year 2025.

Other notable aspects of the bill include fully funding veterans’ health care; rescinding ~$30B of unspent coronavirus relief money; increasing some work requirements for the Supplemental Nutrition Assistance Program (SNAP); streamlining the environmental review process for energy projects, restarting student loan repayments, and reducing IRS funding.

The House of Representatives is expected to vote on the bill on Wednesday, in order to provide the Senate with time for its own vote prior to June 5, the new updated default date, according to Treasury Secretary Janet Yellen.

As with any compromise, various members of both parties will be unhappy about different aspects of the bill, preventing it from receiving unanimous support.  Nonetheless, given the bipartisan manner in which it was crafted and the impact a default would have on both the domestic and global economy, the bill is expected to receive Congressional approval.

Economic Commentary

Manufacturing activity unexpectedly fell in early May, recording its largest contraction in three months on weaker demand. Conversely, service sector activity accelerated more than expected, aided by the strongest pace of new orders in over a year, and the fastest pace of job growth in 10 months.

PCE inflation, the Fed’s preferred inflation measure, increased 0.4% in April and 4.4% from a year ago, both slightly above expectations.  Prices for goods and services increased by 0.3% and 0.4%, respectively.  Core services excluding rent, a metric closely watched by the Fed, increased 0.4%, the fastest pace in three months.  In the wake of the report, market expectations for another rate hike at the Fed’s June meeting jumped above 70%, up from less than 15% a week ago.

Despite higher costs, personal spending in April rose 0.8%, twice the expected 0.4% increase. Good and services spending both increased, led by spending on health care, financial services, and new automobiles. The increase in spending was supported by slightly higher personal incomes in April. However, a 0.4%  drop in the personal savings rate indicated that consumers dipped further into savings to support their spending needs.

Consumer sentiment rebounded slightly from six-month lows earlier this month but worries persist around the debt ceiling impasse and possibility of  recession.

Of Note

Ford and Tesla announced an agreement allowing Ford electric vehicle owners to use Tesla’s charging network with the use of an adapter. Beginning in 2025, all electric Ford vehicles will be manufactured to conform with Tesla’s North American Charging Standard (NACS).

Market Indices   (As of 05/26)

S&P 5000.3%
Small Caps0.0%
Intl. Developed-2.4%
Intl. Emerging-0.5%
U.S. Bond Market-0.7%
10-Year Treas. Yield3.81%
U.S. Dollar1.0%
WTI Oil ($/bl)$73
Gold ($/oz)$1,946

The Week Ahead

  • May Employment Report
  • ISM Manufacturing
  • Consumer Confidence
  • JOLTs
  • Weekly Jobless Claims


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