KEY TAKEAWAYS
Equity Performance in May:
- Major equity indices, like the S&P 500 and Dow Jones, have shown varied performance, encountering what traders often deem as ‘technical resistance levels’.
- TSX lagged due to energy and financial sectors.
- S&P 500 has been resilient, largely thanks to its tech-heavy composition.
- Dow Jones is somewhat lagging.
NASDAQ and Tech Stocks:
- NASDAQ, with its tech focus, has broken its resistance level.
- Companies related to A.I are particularly receiving increased investor attention.
U.S. Debt Ceiling Overview:
- The U.S. debt ceiling sets the borrowing limit for the U.S. government.
- Congress, historically, has adjusted this ceiling multiple times. However, it’s become a controversial topic in recent years, with the potential for severe consequences if not increased.
- If unaddressed, this could result in U.S. default, affecting both domestic and global markets.
Investor Concerns:
- A U.S. default could change the perception of U.S. Treasury bonds as a ‘safe investment’.
- This uncertainty is causing hesitancy and pause in some market sectors due to increased volatility.
Current State of Debt Ceiling:
- Lawmakers are currently in negotiation over the debt ceiling.
- Media is magnifying the situation, causing panic and fear among investors.
- A resolution is needed to prevent potential economic repercussions.
Economic Indicators and Recession:
- Key indicators like Unemployment and Housing Starts remain robust.
- However, THE CONFERENCE BOARD’s Leading Economic Index (LEI) signals potential recession. The LEI comprises 10 subcategories and is showing warning signs.
Inflation and Rate Hikes:
- Inflation remains a central concern, with the U.S. CPI for April at 4.9% and Canadian CPI for April at 4.4% YoY. Rent and mortgage interests are primary drivers.
- Bonds are under pressure due to the anticipation of further rate hikes.
Outlook on Investments:
- Uncertainties from upcoming Bank of Canada and U.S. FOMC Meetings, along with the U.S. Debt Ceiling issue, will likely impact market stability.
- Expectation of a mild recession by the end of Q3.
- Despite uncertainties, stock markets historically overcome challenges. The plan is to maintain a balanced stance on equities and fixed income, with flexibility to adjust based on market conditions.
- Option strategies are favored for certain portfolio models in these volatile times.