Last week, as anticipated, a potential crisis was averted as the issues surrounding the debt ceiling and defaults appeared to have been resolved. The market typically responds positively to certainty, and we can expect this sentiment to prevail in the coming week. However, there are some concerns about Congress passing the resolution by June 1st. Fortunately, the President and Speaker have agreed to a short-term increase, which provides a degree of reassurance.
At the start of this week, we should witness a positive market reaction across various sectors, although it’s important to note that the US markets were closed in observance of Memorial Day. As we have previously noted, Washington has a tendency to address matters at the last minute, often with some dramatics. While there may be more developments in the coming days, there is a sense of hope regarding the overall situation. Our focus remains more on the market’s direction than on political dynamics.
Looking ahead, attention shifts to the economy and the interest rate environment. Throughout the week, there were reports from the Federal Reserve (FED) indicating a contemplation of a pause. With the debt ceiling issue now resolved, strong job numbers, robust GDP growth, and the Nasdaq’s strength, we are left to wait for further indicators. Currently, we are in a market cycle where free money is being withdrawn, yet the economy continues to display considerable strength. Individuals with stable employment are likely to pursue major purchases such as vacations, cars, and even homes, despite higher interest rates. If one were to buy a house now with a 6% mortgage rate compared to 3%, concerns about inflation tend to take a back seat. Inflation represents a desire to acquire assets without excessive concern for the price, thereby contributing to the upward trajectory of prices.
Earnings season has concluded, with Nvidia delivering outstanding results and the Nasdaq experiencing its fifth consecutive week of gains. The market, being forward-looking, often proves to be accurate in its assessments. The Federal Reserve stands ready to take action and normalize the situation as needed. While we anticipate a strong start to this week, caution is advised. This is not the ideal time for overly risky investments, unless one is prepared to face potential losses. It is always disheartening to be wrong despite the possibility of being right. Therefore, adhering to a long-term approach is recommended.
Stay tuned for further updates next week.
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