CIO Monthly Observations - June 2023
Markets in Review
Markets were negative for most of the month, but rose in the last few days, once the debt ceiling negotiations yielded an agreement in principle. The S&P 500 gained 0.3% in May, improving its year-to-date performance to 8.9%. However, the MSCI All Country World index fell, losing 1.3% during the month and reduced its year-to- date return to 6.8%. The Bloomberg BarCap U.S. Aggregate Bond index dropped 1.1% during May and its year- to-date return is now down to 2.5%.
This month was driven higher by excitement over Artificial Intelligence and the belief that the Fed will stop raising interest rates because inflation continues to come down and lower by fears that the United States would default on its debt because a deal couldn’t be reached on the debt ceiling. As of this writing, an agreement on the debt ceiling has been reached, but both the House and the Senate must pass the bill before the Treasury can begin issuing net new debt.
The CPI report showed inflationary pressures are slowly easing Artificial Intelligence is the new buzz word in corporate earnings
President Biden and Speaker McCarthy completed an agreement to suspend the debt ceiling
News in Review
Below are some stories that caught our eye this past month. To learn more, follow the links to the full article.
The Consumer Price Index (CPI) rose 0.4% in a month and is on track for a 4.9% annual gain. This is slightly less than the 5.0% annual rate of last month and is down from 5.5% a year ago. The Fed has raised interest rates 10 consecutive times for a total of 5 percentage points of increases in order to fight inflation, so it’s possible the Fed may take a “pause” at next month’s meeting and not raise rates again.
One of the largest chipmakers in the world raised its sales estimate to $11 billion for the next quarter vs. $7.2 billion expected and said the reason was strong demand for powerful chips used in Artificial Intelligence systems. After that news was released, chipmakers and other companies in the AI industry saw their stocks jump by double-digits, showing the excitement that currently surrounds anything having to do with AI.
The lead Republican in the House, Kevin McCarthy, reached an agreement with the lead Democrat, President Joe Biden, and resulted in a bill with provisions that both sides have accepted. The bill needs to pass the House of Representatives and the Senate, before the President can sign it in to law. At this point there are only a few days left before the Treasury runs out of money to pay its bills. Until it is signed into law, the Treasury is unable to issue net new debt and could lead to another financial crisis.
Most people are used to having their bags weighed before they are loaded onto an airplane, but when was the last time you were asked to step on a scale before you boarded? As you can expect, the idea is controversial, but apparently it is a voluntary program being run by Air New Zealand that only submits anonymous numbers to a central database and doesn’t show employees (or anyone else who would be watching) what your weight is.