Looking Back at the Markets in May and Ahead to June 2023

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After a continued rally in April, markets largely pulled back in May. Exceptions here were the Nasdaq, which rose, and the S&P 500, which was essentially flat. The Dow, international markets, and bond markets were down by low single digits. The primary drivers for the decline were concerns surrounding the economy, politics, and—above all—the debt ceiling.

Looking Back

The debt ceiling. For much of April, the debt ceiling confrontation dominated headlines, and worries of a government default rattled markets. Interest rates on short-term Treasury securities rose sharply on fears that they would not be paid on time, and concerns about the economic damage of a shutdown raised recession fears.

Markets consequently pulled back, with the exception of the Nasdaq. Between the excitement of the artificial intelligence sector (driven by ChatGPT) and the shocking surprise earnings report from Nvidia (which lifted the semiconductor sector), the Nasdaq and growth stocks took off. With growing concerns about the rest of the market given economic and political worries, investors shifted back to chasing growth. That said, general market conditions were difficult.

June should be different. As I write this, the debt ceiling confrontation is on the verge of resolution. The House Republicans cut a deal with the White House, which would raise the debt ceiling and is scheduled for a vote today. While passage is not guaranteed, expectations are that it will pass. If it does, it would take this issue off the table for the next couple of years and could be a tailwind for markets in June.

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