Mid-Week Market Minute 5.31.23

Growth Stocks Performance; Labor Data This Week

Global stocks were mostly flat in early trading this week as investors kept a close eye on the debt ceiling debate in Washington. With one trading day remaining for May, the S&P 500 is higher by about 1% on the month. Through the first five months of the year, the S&P 500 is better by about 10%. Growth stocks and, more specifically, technology stocks, have significantly outperformed value stocks so far this year with the Nasdaq Composite Index higher by nearly 25% year-to-date. In bonds, higher interest rates in May put downward pressure on bond prices, leaving the Bloomberg Aggregate Index lower by about 1.50%. Despite the recent move higher in interest rates, bonds remain firmly in positive territory with the Bloomberg Aggregate higher by about 2% so far this year.

Over the weekend, President Biden, and House Speaker Kevin McCarthy announced a deal to raise the debt ceiling. The deal will eliminate the debt ceiling until 2025 and hold nondefense discretionary spending flat for the duration. Following a 7-6 vote in the House Rules Committee on Tuesday, the deal is expected to reach the House Floor for a vote by Wednesday night. Although plenty of concerns remain, the bill has significant bipartisan support and is expected to pass prior to Treasury Secretary Janet Yellen’s revised “X date” on June 5.

On the data front, this week is all about the labor market. On Wednesday, we get a new read on job openings for April, along with numbers on quits and layoffs. Thursday will bring unemployment claims and the ADP employment report, followed by the crucial non-farm payrolls report on Friday. Economists expect Friday’s report to show 180,000 new jobs were created in May, while the unemployment rate is expected to remain at near record-lows at 3.5%. This data will help guide the Federal Reserve’s decision at the next meeting on June 13-14. As of this week, markets are now pricing in about a 63% probability of another 0.25% (25 basis point) rate hike at the upcoming meeting, which would take the federal funds rate to a level of 5.25% - 5.50%.

Source: GSAM, CNBC, JPMorgan

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