It was a good week for the stock market last week, with both the S&P 500 and the NASDAQ recording their best performances since November. Although there is a sense that many are preparing for a possible recession, bank earnings showed continued resilience despite economic headwinds.
Speculation about the possibility of a soft or hard landing continues to dominate market discussions about the likelihood of a recession in the US. Furthermore, interest rates are expected to remain high for longer, but the details of any further rate moves will continue to catch market participants' attention. Most investors are wondering if the Federal Reserve will push back a 25 basis point increase.
Top bankers like Jamie Dimon have commented on the topic, predicting a mild recession even though the economy remains strong. Reuters Article
As well as the stock market, other financial markets have been active as well. Over the weekend, Bitcoin rallied above $21,100 and is consolidating those gains this morning. The price of gold has also moved this morning, peaking at $1,928 before falling back towards $1,900. The support for gold could be $1875.
Bloomberg data as of January 15th, 2023 indicates that US debt payments are on track to exceed 3% of GDP due to these market developments. This amounts to $699.6 billion. As of 2022, the total US debt stood at $31.124 trillion, of which foreign investors held $7.6 trillion, or 24%. 76% of the $699.6 billion goes back into the US economy, boosting the budget by $524.7 billion.
The US economy has seen a sustained period of high net spending in recent days, with the 10-day average surpassing $30 billion for eight consecutive days. According to data up to December 1st, 2023, net spending reached a high of $50 billion on Thursday, a one-day high level not seen since November 15th, 2022.
These high levels of spending can be attributed to the current deficit of $119 billion, which is providing a boost to the economy and contributing to the upward trend of the S&P 500 index. In fact, 63% of companies within the S&P 500 are currently trading above their daily 200-period moving average.
In addition to these positive economic indicators, there has also been a steady increase in the 20-period monthly average of withheld income and employment taxes, starting from November 30th, 2022. This trend suggests that more individuals are earning higher wages or are finding more work, which is a positive sign for the economy.
There are also some concerns for the economy, such as declining Consumer Price Indexes (CPIs) and inflationary pressures, as well as diminishing trade numbers, which are pointing toward a possible recession. Nevertheless, the S&P 500 index will continue to rise as long as money is pumped into the economy. However, taking the necessary steps to mitigate the impact of potential economic challenges is crucial.