The FCMS Investment Committee is pleased to share the latest insights on the current financial market and economic developments.

Market Perspectives

Here are the top 3 things from our FCMS Investment Committee on current financial markets and economic developments:

1. 1. Debt ceiling bill likely to pass this week with little market impact

      Over the weekend, lawmakers reached a bipartisan agreement and drafted a bill that raises the debt ceiling for two years and caps spending modestly. The bill will likely become law this week, although we are monitoring the situation for any last-minute discussions. We don’t expect large moves across markets outside of the very shortest maturity U.S. Treasury bills, as this result was already in the price of most assets.

   2. AI stocks dictate value as NASDAQ outperforms S&P 500

      Last week’s highly anticipated earnings report from NVIDIA overshadowed the day-to-day noise of the debt ceiling. Looking broader, individual stocks and investment sectors exposed to the AI theme continue to dictate value; the NASDAQ 100 Index is up over 30% this year, while the average S&P 500 Index has gained less than 1%. Our sense is that this trend has room to continue in the coming months. One caveat — the volatility of this trade is likely to increase as AI takes a front-and-center role in the financial media.

   3. Investors anticipate interest rate hike as U.S. economy remains resilient

      Recent economic data and earnings releases point to continued resilience in the U.S. consumer, the lynchpin of the economy. Ongoing economic strength and trend inflation inconsistent with the Fed’s 2% target has driven investors to price in full rate hike over the two upcoming Federal Reserve meetings. Positive surprises from this week’s NFP report and JOLTS survey could pull that hike forward to the June meeting and potentially force investors to price in more interest rate increases from the Fed. Our sense is another hike will not meaningfully change the better mood on Wall Street, especially as the AI craze takes hold, but it also pushes back the time when investors can well and truly put this Fed tightening cycle behind them.

What Happened Last Week?

Here is a recap of the top 3 things that happened last week:

• A debt ceiling agreement was reached and will likely become law this week.
• NVIDIA earnings were released, and the results offer fundamental support for the Artificial Intelligence (AI) theme gripping stock investors.
• Treasury yields retraced higher as data points to continued economic resilience.

What We’re Watching This Week

• Debt ceiling procedures and votes for potential last-minute negotiations.
• Price action for stocks through the key 4200 technical level in the S&P 500, as well as in AI-related names.
• The pulse on the domestic labor market through Nonfarm Payrolls (NFP) report and Job Opening Labor Turnover Survey (JOLTS) survey.

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