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Debt Ceiling Crisis Averted

What a great week.  The debt ceiling default has been averted, the economy appears to be running on all cylinders, inflation is on the decline, and the markets are once again headed in the right direction.  Some of the uncertainty that plagued investors this year has melted away lending to the relief rally we saw today.  This is one of the reasons investing can be so difficult and makes market timing impossible.  There are moments when fear takes hold and the momentum becomes overwhelming.  It is in these dark times that holding steady is often the best course.  While we’re not completely out of the woods, it does appear we’re headed in the right direction.

Let’s start with the best news this week.  The U.S. added 339K jobs in May, topping expectations by a wide margin.  The consensus was for 190K jobs created in the month demonstrating, they believed, an accelerated slowdown in the economy.  Job gains were notable in professional and business services, government, health care, construction, transportation and warehousing, and social assistance.  This jobs report strikes just the right balance between the strength we need to sustain the economic expansion and the softening required to subdue the demand for goods and services, which has put upward pressure on inflation.  Perhaps the silver lining is that despite the large jump in payrolls, wage growth declined by 4.3% and the unemployment rate rose to 3.7% signaling people are returning to the job market.  One of the biggest questions this year, after the fast pace of interest rate hikes last year, was whether we were headed for a hard landing or a soft landing.  It now looks like the latter may be the case.

Today’s jobs report will play heavily into the Federal Reserve’s next move regarding interest rates.  With only two weeks before its next FOMC meeting, there aren’t many big economic releases between now and then.  When the news broke this morning, the initial reaction was that the upbeat jobs report may give the Fed room to raise rates further.  But by the end of the day, the consensus returned to a June “skip” which fostered the market reaction today.  That’s not to say that the Fed is done just yet.  Some believe it could raise rates again in July after waiting a month to give the economy and inflation time to show further progress. While June is off to a strong start, May went out with a bit of a whimper.  The best-performing sectors were Information Technology +9.29% and Communication Services (mostly Google & Meta) +6.21%.  The only other sector in the green was Consumer Discretionary which rose 3.09%.  The remaining sectors are as follows: Industrials -3.45%, Health Care -4.44%, Financials -4.48%, Real Estate -4.66%, Consumer Staples -6.21%, Utilities -6.36%, Materials -7.11%, and Energy -10.61%.  As you can see most of the market did not participate in the gains the indices returned last month.  Hopefully, the reversal we saw today, with many of the underperforming sectors shining, will continue.

In company news, we learned Amazon may be fleshing out a new offering.  Apparently, for the past couple months, the company has been negotiating with mobile carriers to begin offering an Amazon-branded cellphone service as part of its Prime membership.  It seems after raising its Prime membership fee from $119 to $139 last year, it saw subscription growth slow.  If it can strike the right deal, it sees this as one way to regain subscription momentum.  In other news, Apple began offering a new high-yield savings account attached to its credit card offering.  In partnership with Goldman Sachs, Apple cardholders could, in theory, move money easily between accounts while getting a 4.15% interest rate.  There was only one problem… it seems many customers lost access to their money.  For those with direct deposit, in some cases, it meant not being able to withdraw the money for up to four weeks.  According to an Apple spokesperson, the glitches have been fixed but I’d wait a bit if I were you.

In closing, this is more a public service announcement than a funny story.  Payment apps have flourished in recent years, making sending money easier than at any other time in history.  Whether it's Venmo, PayPal, or Block, these popular digital payment apps are increasingly used as substitutes for a traditional bank.  This week the Consumer Financial Protection Bureau (CFPB) warned that these apps may be unprotected during times of financial distress.  That’s because the money is not being held in a traditional bank account, where deposits up to $250K are insured by the FDIC.  Unlike traditional banks with FDIC insurance, a run on these apps not only could result in delays but could mean the loss of one’s money.  While these apps are undeniably convenient, there are potentially serious risks.  Use these apps, but try not to leave money in the app for an extended period of time.  Your best bet is to move the money to your traditional bank account at soon as feasible.  Now you know. 

Bruce J. Mason, MBA