DJIA:  52-wk: +3.43% YTD: +0.46% Wkly: -1.11%
S&P 500: 52- wk: +2.49% YTD: +7.41% Wkly: -0.29%
NASDAQ: 52-wk: +4.08% YTD: +17.37% Wkly: +0.40%
Health Care Select Sector SPDR ETF : 52- wk: +2.79% YTD: -2.69% Wkly: -1.05%

Explaining the Debt Ceiling issue:
Before diving in, there is an important starting point in framing the debt ceiling issue, which is:
raising the debt ceiling does not authorize Congress to initiate any new spending.
On the contrary, raising the debt ceiling simply allows the U.S. Treasury to borrow in order to pay existing obligations. Thinking of it a different way, it would be similar to making the decision to buy a car, signing a contract to finance the purchase, and then debating several months later whether or not you should make the monthly payments. Other than Denmark— where the debt ceiling matter has yet to become a political flashpoint—no other developed country operates this way.

Regional Bank Dividends Look Stable–for now:
Bank stocks broadly took a big hit in the week PacWest was cratering.  On May 4, shares of ZION, a Salt Lake City -based bank were yielding 8.6%, CMA based in Dallas, was at 9%, and Cleveland-based KEY was at 9.2%.  These dividend yields have since come down a bit as the stocks recovered some ground.  

Banks and high interest rates:
Banks have been bending under the weight of much higher interest rates, which have caused some customers to  pull deposits in search of higher yields while also dragging down prices for the investments that the banks hold.  

The University of Michigan’s latest sentiment survey out Friday:
The survey shed light on consumers’ dour mien.  The index plunged by 5.8points, to 57.7, far below both economists consensus estimate and recent readings in the low-60 range.  Their assessment of current conditions fell by 3.7 points, to 64.5, and expectations for future conditions plunged by 71 points, to 53.4.  

Healthcare sector:
No  matter what’s going on in the economy, people need to take their medications and visit the doctor. Revenue and earnings tend to be significantly less volatile than the broader market.  The strength hasn’t continued this year.  The S&P has gained 8.4% while healthcare stocks have fallen 2.3%.  Yet there is real growth to be had in healthcare.  The industry has averaged 12% earnings growth since the mid 80”s, the fastest of any sector.  The decline to start off the year has made valuations more attractive.  Healthcare currently trades at a 5% discount to the S&P 500, versus a historical premium of about 11%--while the fundamental outlook is hardly different.    

The rise of gold during a period of higher interest rates should send a warning about U.S. finances and the dollar’s international status.  Central banks added 228 metric tons of the metal to their reserves in the first quarter, according to the World Gold Council.  That followed a record addition of 1,136 metric tons in 2022, during which China resumed its purchases.  

The mantra of “bad news is good news” is being invoked because negative developments could bring interest-rate reductions, which usually boost asset prices.  

Richie Naso

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