The Debt Ceiling Drama: A Critical Juncture

The Debt Ceiling is the maximum amount of money the U.S. Treasury can borrow. Increasing the Debt Ceiling allows the government to pay for obligations like Social Security, government employee wages, and military spending. Treasury Secretary Janet Yellen said that if Congress does not increase the debt ceiling by June 5th, we could see a first-ever default in the United States. By the time you read this post, we’re hoping that the debt ceiling was raised, but it still caused a great deal of volatility in May.  

 

Implications of the Proposal: Welfare Restrictions and Student Loans

The current version of the proposal winding through Congress would add some welfare restrictions. People who are low-income but are eligible to work and are receiving Supplemental Nutrition Assistance Program (SNAP), formerly known as Food Stamps, and are aged 50-54, would be required to work to receive benefits. As of today, if you are between the ages of 18-49, there is already a work requirement.

Also, the proposal would re-start interest and payments required for student loans, which have been paused since 2020 when Covid was in full swing. The proposal would fully fund healthcare for veterans, Medicare, and Social Security while cutting funding for the IRS by $1.4 Billion.

 

More Positive Changes In Our Indicators

While past performance cannot predict future performance, historically, a bear market lasts 15 months on average. We are currently in month 17. The stock markets were down big in 2022, but dating back to 1928, the market has had back-to-back negative years only four times in almost 95 years, so the odds say we’re due for a rebound in 2023. Anything is possible, of course, despite the odds, which is why we monitor the portfolios daily.

For the indexes, once again, this was a mixed month. The DOW Jones was down 3.49%, the S&P 500 index was near flat, the Russell 2000 was down 1.7%, and the tech-heavy Nasdaq had larger gains because of speculation into the use of Artificial Intelligence. The Aggregate Bond index (AGG) also had a rough month, losing 1.39%. We encourage you to review your own statements to see your own performance.

There is a chance the market goes sideways or even down in June, but longer term, there are five pieces of evidence that are making us optimistic that the next 18 months until the election have the potential to be good for stocks.

First, every President typically wants to get re-elected, so they make moves that potentially “window dress” the economy and stock market before the election.

Second, one of our most important longer-term indicators shifted from negative to positive in late April. It had been negative since the first quarter of 2022, so it was negative for quite a while (Source: https://www.shermanportfolios.com/indicators). ​While past performance cannot predict future performance, in the past, this type of indicator switch has said brighter days may lie ahead for the stock market in the longer term.

Third, in May, a shorter-term indicator from our new partnership with the Sherman Portfolios flipped from red to green.

Fourth, this past earnings season, 78% of companies reported higher earnings than expected, beating expectations by 6.5% earnings growth on average.

Finally, the 200-day moving average of the S&P 500 has turned and is now heading up rather than down. This is a longer-term trendline, and in the past, it has had some success identifying a change in trend

We had a different indicator a few months back say there is a chance we’ll have a recession this year (inverted Yield Curve, Source: https://www.forbes.com/sites/simonmoore/2024/02/06/the-inverted-yield-curve-continues-to-flash-a-recession-warning/?sh=1325948b15ac). We hope that recent improvements in the overall economy, inflation data, and the housing market will provide some stability moving forward. Our new research handled the volatility relatively well this month, but we’re doing our best not to focus on the short-term results because the research has the potential to work well in the long run.

 

Schedule a Meeting to Discuss Your Financial Planning

We encourage you to come by the office to review the new strategy with us in person or via Zoom. We’d love to have a review meeting with you to discuss investments, retirement income planning, college planning for kids or grandkids, tax preparation, health insurance, including Medicare supplemental and prescription drug plans, and a variety of other financial planning topics. Please contact our office at (586) 226-2100 to schedule a meeting today!

If you’ve had any changes to your income, job status, marriage status, 401K options, address, risk tolerance, or any other financial changes, please contact us right away. We hope you and your family are doing well!

Sincerely,

Kenneth Wink

with contributions from Robert Wink, James Wink, Zachary Bachner, and James Baldwin

 

Ken Wink is the Co-Founder and Chief Compliance Officer of Summit Financial Consulting, LLC. With over two decades of experience in the financial services industry, he is deeply knowledgeable and passionate about explaining complex financial concepts in understandable terms. Ken writes articles geared towards conveying financial topics in clear, straightforward language, making them accessible to everyday people.

 

Notes & Disclaimer:  Stock market indices, like the S&P 500 Index, are unmanaged groups of securities considered to be representative of the stock market in general or subsets of the market, and their performance is not reflective of the performance of any specific investment. Investments cannot be made directly into an index. Historical returns data are calculated using data provided by sources deemed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness. This information is provided “AS IS” without any warranty of any kind. All historical returns data should be considered hypothetical. Past performance is no guarantee of future results.

This communication is only intended for recipients who reside in states where our agents are licensed to sell these products. Investment advisory services are offered through Summit Financial Consulting, LLC, an SEC registered investment advisor. Registration does not imply a certain level of skill or training. Summit Financial Consulting Investment Advisor Representatives do not render tax, legal, or accounting advice.  Insurance products and services are offered through Summit Financial Consulting, LLC. Note:  Please update Summit Financial Consulting, LLC, if your investment objectives have changed or if the personal or financial information previously provided has changed. The investment advisory disclosure document that describes Summit Financial Consulting investment advisory services account is provided to you annually. Please consult Summit Financial Consulting for a copy of this document should you need an additional copy. All guarantees are subject to the claims paying ability of the issuing insurance company. Past performance cannot predict future performance. It is not possible to invest directly in an index. The Sherman Group, LLC is not associated with Summit Financial Consulting, LLC in any way, other than a research sharing partnership. Back testing is more heavily scrutinized than any other type of investment analysis because it can be updated to take advantage of past data. The algorithms and trading signals that we receive from the Sherman Group, LLC were created using back testing with the goal of creating a sustainable research process. We have reviewed data from the entire 20 year period which was mostly back tested, and have also personally reviewed the live data for the past 5 years and feel comfortable with it, but we encourage you to meet with us and ask questions so you are fully informed on what we plan to do with your investment assets at TD Ameritrade and eventually Charles Schwab. It is important to look at fees, taxable repercussions, and trading frequency when looking at a rate of return number. There is no perfect system or research feed, and Sherman Group, LLC has had both longer term and short-term periods where they lost money. Investing involves risk, and these portfolios are no exception.