Debt Ceiling Deal in Doubt, Markets Waver

Ulli Market Commentary Contact

[Chart courtesy of]

  1. Moving the markets

The debt ceiling drama is far from over. Even though the two parties have reached a tentative deal, they still need to pass it in Congress by tomorrow. But many lawmakers are not in town, and some Republicans are not on board. This could spell trouble for the compromise bill.

The markets were optimistic at first, but then reality kicked in. Traders realized that the deal is not a done deal, and that the Fed is still looming large. The Fed’s Barkin admitted that inflation is not going away anytime soon, which raised fears of more rate hikes in June.

The economic data did not help either. The Dallas Fed Manufacturing Survey shrank for the 13th month in a row, consumer confidence fell to its lowest level since 2022, and home prices dropped for the first time in nine years. These are not signs of a strong economy.

The only bright spot was the tech sector, especially the artificial intelligence (AI) stocks. Nvidia became the seventh company to join the $1 trillion club, thanks to its booming chip business.

Bond yields fell, while the dollar wobbled. Gold finally got some love.

So, what’s next for the markets? It all depends on whether the debt ceiling deal gets done, and what the Fed does next. All investors should brace for more volatility and uncertainty in the coming days. Stay tuned for more updates.

  1. “Buy” Cycle Suggestions

For the current Buy cycle, which started on 12/1/2022, I suggested you reference my then current StatSheet for ETF selections. However, if you came on board later, you may want to look at the most recent version, which is published and posted every Thursday at 6:30 pm PST.

I also recommend you consider your risk tolerance when making your selections by dropping down more towards the middle of the M-Index rankings, should you tend to be more risk adverse. Likewise, a partial initial exposure to the markets, say 33% to start with, will reduce your risk in case of a sudden directional turnaround.

We are living in times of great uncertainty, with economic fundamentals steadily deteriorating, which will eventually affect earnings negatively and, by association, stock prices.

In my advisor’s practice, we are therefore looking for limited exposure in value, some growth and dividend ETFs. Of course, gold has been a core holding for a long time.

With all investments, I recommend the use of a trailing sell stop in the range of 8-12% to limit your downside risk.

  1. Trend Tracking Indexes (TTIs)

Our TTIs improved slipped with the markets again going nowhere. A debt ceiling deal and the Fed will be key to future market direction.

This is how we closed 05/30/2023:

Domestic TTI: -0.61% below its M/A (prior close -0.44%)—Buy signal effective 12/1/2022.

International TTI: +4.23% above its M/A (prior close +4.29%)—Buy signal effective 12/1/2022.

All linked charts above are courtesy of Bloomberg via ZeroHedge.

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