The Fiscal Responsibility Act of 2023 “FRA” is now law and waives and removes the statutory debt limit through Jan 1, 2025. FRA does not place a cap on U.S. Treasury debt outstanding.
This is anything but “Fiscal Responsibility”. FRA places strict spending limits on $1.6 trillion or 25% of the Federal Budget. We are not fooled by leaders of both political parties stating FRA is curtailing government spending. The federal budget deficit is estimated to be approximate $1.5 trillion in 2023. The U.S. deficit problem is mostly due to untouched entitlements, Social Security, Medicare, Medicaid, and other social programs. As long as federal government spending increases at a rate greater than the U.S. economy, the deficit problem will continue.
With the debt limit issue now resolved for the time being markets are back focusing on the economic activity, inflation and interest rates.
On Friday June 2nd the U.S department of Labor announced 339,000 jobs were added to the economy in May 2023, well greater than 195,000 jobs markets were expecting- BIG NEWS. The jobs report sparked investors to drive the Dow Jones Industrial Average “DOW” up 703 points on Friday June 2nd. Nevertheless, inflation continues to haunt investors. Recent inflation data along with the recent jobs report has shifted expectations for an intertest rate hike in June from a pause that had been assumed 10 days ago.
The DOW is up a mere 2% while the S&P 500 Index “S&P” is up 12% – why the difference?
The S&P is a capitalization weighted index meaning that the largest stocks of the index have a significant impact on its performance. The top ten stocks (2% of the index’s stocks) represent 30% of the index’s performance. These ten stocks contributed 16.8 percentage points to performance, suggesting the 490 other stocks were down 4.8%. Clearly upside participation is highly concentrated among a few highfliers; not a sign of a bull market.
Rich Lawrence June 3, 2023
As always – We recommend only investing in the stock market with a long-term view (3+ years) and having cash available for emergencies and spending needs for the short term 2-4 years.