In very anti-climactic fashion, the debt ceiling was raised last week and the fears of a US default on its debt (an any impending doom to follow) were erased. The agreement suspended the borrowing limit until January 2025, so it’s possible we’ll repeat this process again in a couple short years. Michael Townsend at Charles Schwab summarizes, “The legislation reduces discretionary spending for the next two years, but those cuts do not affect defense spending—which will see an increase in the coming year—nor will there be any cuts to Social Security, Medicare, or veterans’ health care programs.” We are glad to see that, after all the political grandstanding, a compromise was reached and a default was avoided.
Nvidia, a tech giant, became the 7th company to reach the $1 trillion level in market cap after positive earnings and a flurry of investor interest in artificial intelligence [AI]. NVDA is the 4th largest position by weighting in the S&P 500 and has been the largest contributor to performance year-to-date, responsible for nearly 4.5%! Like I talked about in the April commentary, this isn’t necessary a good thing. The bulk of the S&P 500 returns are still coming from the top 10 holdings and the market breadth has yet to improve, as evidenced by the still falling equal weight to market cap weight S&P 500.
“Todays headlines and tomorrow’s reality are seldom the same” is a quote we use often at PDS Planning. It acts as a reminder to take a step back to avoid getting caught up in the hype and excitement within markets. Right now, it looks like AI is the next big thing. Just like Bitcoin and Cryptocurrency was the next big thing, like Marijuana stocks, like blockchain, like GameStop, and countless others. During times like these, we want to stress the importance of remaining diversified and sticking to the long-term financial plan.
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