Some of the best charts from the week that tell a story about the markets and economy.

US Debt Ceiling
Top Republicans and Democrats from congress meet next week to try and resolve the 3 month standoff over the $31.4 trillion US Debt ceiling.

Biden wants to raise the borrowing limit without any conditions. While Speaker McCarthy said his chamber will not approve any deal that does not cut spending to address a growing budget deficit.

We have raised the debt ceiling 78 times since 1960 and it’s likely we will again. The deficit has continued to increase regardless of the administration.

Largest Bank Failures
The last two months have witnessed some of the most significant bank failures in history, as three major banks – Silicon Valley Bank, Signature Bank, and First Republic Bank – collapsed under the weight of an old-fashioned bank run. The sudden surge of investors trying to withdraw their money all at once caused a catastrophic domino effect, ultimately leading to the failure of these banks.

In today’s world, where most financial transactions happen electronically, the possibility of bank runs may be higher than ever, especially with the rapid spread of information on social media platforms. Nevertheless, the government has taken steps to stabilize the banking system, and experts generally believe that the recent bank failures do not pose a threat to the wider banking system.

As a result, most consumers can feel confident that their bank deposits are safe, especially deposits under the $250,000 FDIC insurance limit, which provides protection against losses in the event of a bank failure.

Fed Rate Hike
As expected, the Federal Reserve raised rates by 25 basis points. The move pushed the central bank’s rate to 5.00-5.25%, its highest level since September 2007. Looking ahead, the market is currently projecting a pause in June/July, followed by a rate cut in the September meeting.

From a financial planning perspective, it’s worth noting that fixed income yields may be near the peak. This could be a good time to reassess investments in bonds, CDs, money market accounts, and other fixed income options. On the lending side, there may be an opportunity to refinance at a lower rate in the next few years. While nothing is guaranteed, keeping these possibilities in mind could help inform future financial decisions.

Reasons to Sell
Despite three of the biggest bank failures in history, the US being on the verge of default, and the highest rates since 2007, the stock market has started the year strong. As of today, US stocks are up 7% year to date.

Rather than fixating on negative news, it can be more beneficial to focus on how the market has already priced in that information. As past experience has shown, allowing negative news to dictate investment decisions can often result in missed opportunities…

 

George Maroudas, CFP®

George Maroudas, CFP®

847-550-6100
george@pmgwealth.com
Twitter @ChicagoAdvisor

Disclaimers / Sources:

US debt has risen regardless of administration from BBC
First Republic Joins List of Biggest-Ever Bank Failures from Bloomberg
Federal Funds Rate from WSJ
Reasons to Sell from Plan To Rise Above Blog

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