The elusive debt ceiling deal is no longer elusive. It was found by President Biden and House Speaker McCarthy over the holiday weekend, yet the most important element is still missing: passage by the House and Senate.
Briefly, part of the framework of the deal that has been announced includes a suspension of the debt ceiling until January 1, 2025, a cap on non-defense spending for two years, a clawback in unspent COVID relief funds, ending the ongoing freeze in student loan payments, and work requirements for SNAP recipients up to 55 years of age, excluding veterans and homeless people.
It is expected that the House will vote on this bill Wednesday night and that the Senate will vote on it over the weekend. That will happen before the X-date, which Treasury Secretary Yellen said is now likely to be June 5.
Not surprisingly, some hemming and hawing over this compromise deal has been heard from the wings of both parties, yet the leaders remain confident that they will have the votes to pass this debt ceiling agreement. The overarching risk, therefore, is that dissension in the ranks prevents passage of the deal before the X-date.
The market, though, is taking the over on the deal being passed in both houses of Congress. It also continues to take the over on the AI boom and the mega-cap stocks, which is plain to see in pre-market action.
Currently, the S&P 500 futures are up 23 points and are trading 0.6% below fair value, the Nasdaq 100 futures are up 190 points and are trading 1.4% above fair value, and the Dow Jones Industrial Average futures are up five points and are trading fractionally above fair value.
NVIDIA (NVDA) is leading the mega-cap run this morning, up 4.3% after the company introduced its DGX GH200 AI Supercomputer. Tesla (TSLA), meanwhile, is up 3.7%, aided by Barclays reiterating an Overweight rating, Meta Platforms (META) is up 2.1%, and Apple (AAPL), Alphabet (GOOG), Amazon.com (AMZN), and Microsoft (MSFT) are all up more than 1.0%.
What jumps out is that the Dow futures are pointing to a flat start and the S&P 500 futures are pointing to an open that suggests another lopsided performance with mega-cap stocks powering ahead and the rest of the market remaining stuck near the starting line.
That has been the modus operandi this year. Entering today, the Vanguard Mega-Cap Growth ETF (MGK) is up 28.6% year-to-date and the market-cap weighted S&P 500 is up 9.5%.
Conversely, the price-weighted Dow Jones Industrial Average is down 0.2% and the Invesco S&P 500 Equal-Weight ETF (RSP) is down 0.1%. That languid performance is an offshoot presumably of festering concerns about the economic and earnings outlook, which are an offshoot of concerns about the tightening of monetary policy.
The April PCE Price Index reported last Friday did not help those concerns. The fed funds futures market shows a 64.2% probability of another 25-basis points rate hike at the June FOMC meeting versus 28.1% only a week ago, according to the CME FedWatch Tool.
Those expectations will be closely watched this week with the release of some key economic data that will include today’s Consumer Confidence Index Report for May, JOLTS-Job Openings data on Wednesday, the ADP Employment Change Report, weekly initial jobless claims, and the ISM Manufacturing Index on Thursday, and of course the May Employment Situation Report on Friday.
This will be a shortened week of trading, but it promises to be long on important, market-moving happenings.
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Originally Posted May 30, 2023 – There is a debt ceiling deal, now it needs to pass
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