Stalling Out or Gearing Up?

May 22, 2023

By Tristan Detzel, Advisory Consultant
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Stocks finished off the week higher on the back of last week’s encouraging decline in inflation, the latest real estate data releases, and further commentary from Federal Reserve (Fed) officials. We saw markets edge higher mid-week as housing starts unexpectedly climbed in April, but investor optimism faltered on Friday as it was announced that debt ceiling negotiations had once again stalled out.

Despite Friday’s retreat, U.S. stocks recorded strong weekly gains, with the S&P 500 clocking in its biggest weekly percentage gains since March of 1.7% and the NASDAQ 100 notching a new 52-week high of 13,893. Major sectors on the S&P 500 finished off on a mixed note Friday with consumer discretionary and communication services stocks recording the biggest losses, while energy and health care stocks raced toward a 1-2 finish.

Last week, investors geared up for a strong showing as prior week’s inflation data showed slight signs of easing combined with growing confidence that a debt ceiling resolution would soon be reached. President Biden and Speaker Kevin McCarthy met on Tuesday to begin negotiations, but they weren’t able to turn the corner. With the Friday meeting postponement, negotiations had clearly burned out and investor optimism sank further heading into the weekend.

Treasury Secretary Janet Yellen has reiterated warnings that a potential U.S government default is possible as early as June 1 if an agreement is not reached. On Tuesday, President Biden met with Speaker McCarthy and other top congressional leaders to continue these negotiations and Biden stated he was “confident that we’ll get the agreement on the budget and that America will not default.” Speaker McCarthy followed his lead and said that he sees “the path that we can come to an agreement.” This week’s progress raised hopes for the U.S. to avoid the looming consequences of a default, but by Friday, hopes waned as negotiations stalled. While it’s hard to comprehend the inability of the Republican and Democratic parties to reach an agreement, one would hope this is just a quick pit stop before the weekend and not a full restart.

On Thursday, The Conference Board published its Leading Economic Index (LEI), which is a gauge of 10 key indicators designed to provide an overall indication of near-term future performance of the U.S. economy. Unfortunately, the LEI for the U.S. fell by 0.6% in April, following a record decline of 1.2% in March. The LEI is down 4.4% over the last six-month period and which still signals a recession over the next 12 months. Stock prices and manufacturers’ new orders for goods and materials are the two indicators with positive contributions to the LEI over the past six months. It’s worth noting that the Coincident Economic Index (CEI) for the U.S. increased by 0.3% in April and is up 0.7% over the past six months. While recent trends in manufacturing activity and industrial production have been weak, employment and income growth remain positive. This trend can be seen in the latest initial jobless claims falling by 22,000  to 242,000  in the week ending May 13 according to data published by the Department of Labor. There was a bit of concern after data integrity came into question following a large jump in initial jobless claims the prior week, but it was later disclosed that this was caused by fraudulent activity in Massachusetts due to attempts to access unemployment insurance benefits.

Yields on 10-year U.S. treasuries are up almost 30 basis points this week as investors adjust the probability that the U.S. economy is in a better state than anticipated and that the Fed, consequently, may see no need to cut rates anytime in the near future. In February and March, many investors began pricing in rate cuts later in 2023 with heightened market anxiety surrounding the banking crisis. With the possibility of a soft landing gaining traction, economists are gravitating towards a lower target policy rate in the first quarter of next year, according to the survey released by the National Association for Business Economics.

Throughout the week we saw a fresh batch of commentary from Fed officials. Atlanta Fed President Raphael Bostic hinted that it would be unlikely for the Fed to cut rates this year and Dallas Fed President Lorie Logan conveyed support for further rate hikes. This sentiment led to rates moving  higher, but on Friday Fed Chairman Jerome Powell signaled a pause to further rate hikes, stating that “Having come this far, we can afford to look at the data and the evolving outlook and make careful assessments.” Investors will key in on the continued Fed commentary in the coming week with hopes that in regard to further rate hikes, the proverbial checkered flag is in sight.

The upcoming week features a handful of economic data readings, FOMC meeting minutes, and multiple Fed speakers slated to speak throughout the week. The majority of attention will be focused on April’s updates for the Personal Consumption Expenditures (PCE) Deflator (the Fed’s preferred proxy for inflation) to wrap up the week on Friday. Investors will cheer for any signs that inflation is cooling off towards the central bank’s 2% target.

Date Report



Monday 5/22/23 None scheduled
Tuesday 5/23/23 S&P flash U.S. services PMI


S&P flash U.S. manufacturing PMI


New home sales



Wednesday 5/24/23 Minutes of Fed’s May FOMC meeting
Thursday 5/25/23 GDP (second reading)



Initial jobless claims



Pending home sales



Friday 5/26/203 Durable-goods orders



Durable-goods minus transportation


Personal income (nominal)



Personal spending (nominal)



PCE index


Core PCE index



PCE (year-over-year)


Core PCE (year-over-year)



Advanced U.S. trade balance in goods


Advanced retail inventories


Advanced wholesale inventories


Consumer sentiment (final)