Weekly Market Highlights

  • Bank of England leaves monetary policy unchanged
  • S&P 500 and DJIA post gains of 1.3% and 1.1%, respectively
  • U.S. inflation and housing data and euro area GDP headline this week’s economic releases

After a short-term extension, the federal debt limit is set to take effect this coming weekend. That being said, U.S. Treasury Secretary Jack Lew stated on Friday that the federal government will be able to fund itself until Labor Day thanks to incoming cash flows. While Lew also said that the debt ceiling should be dealt with right away, Congress is not expected to address the situation until later this fall, likely coinciding with the start of the next fiscal year in October. Once that time comes due, we expect a very heated and partisan debate as Republicans will once again push for spending cuts in exchange for another increase to the debt ceiling.

Policy Status Quo

In the meantime, we expect to see very few policy developments emerge from Washington. The budget sequestration is likely to remain in place through the remainder of this fiscal year and although both parties have expressed an interest in achieving a comprehensive budget agreement and tax reform, we do not expect either to come to fruition for the time being. Under such a scenario, the credit rating agencies will likely take a fresh look at the United States and downgrades are a very real possibility.

Market Implications

The good news for investors is policy developments in Washington are unlikely to disrupt the positive momentum in the equity markets at least until later this year. With respect to the ongoing rally, we remain constructive on the forward outlook for equities and believe the economic data here in the United States will improve over the next several months. Confirming this viewpoint has been the continued outperformance by the more cyclical areas of the market—last week, the Industrials and Materials sectors were up 2.4% and 1.9%, respectively. This may mark the beginning of a sector rotation, which could hinder the performance of defensive sectors such as Utilities, Health Care and Consumer Staples, which have all enjoyed strong performance to begin the year and are trading at much richer valuations compared to their long-term averages and cyclical counterparts.

Data Source: FactSet and RIMES

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Third-party economic or market estimates discussed herein may or may not be realized and no opinion or representation is being given regarding such estimates. This material has been prepared by Neuberger Berman LLC on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. Neuberger Berman LLC has not sought to independently verify information taken from public and third party sources and does not make any representation or warranty as to the accuracy, completeness or reliability of the information contained herein. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.

© Neuberger Berman


Read more commentaries by Neuberger Berman