Stocks Waver Ahead of Biden, McCarthy Debt Ceiling Talks

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published 22 May 2023

The major benchmarks failed to make big moves Monday as investors looked ahead to several potentially market-moving events this week.

Most notably is the outcome of tonight's meeting between President Joe Biden and House Speaker Kevin McCarthy, who are desperately trying to negotiate the debt ceiling by the end of this month.

Biden and McCarthy will meet later tonight to discuss the debt ceiling crisis. Conflicting headlines over negotiations have emerged recently, though the president told reporters on Sunday a call between the two "went well."

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The ultimate goal is to reach a deal before June 1, which Treasury Secretary Janet Yellen has said is the date when the U.S. will likely run out of money to meet all of its financial obligations. Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute, believes a default is unlikely to occur, even though it may come down to the eleventh hour.

"While the risks of a political miscalculation are higher than in the past, in our view it is unlikely that either party will want to be responsible for a U.S. government default," Rehling writes in a note to clients. "At some point, we expect politicians to pass an increase to the debt ceiling, just as they have [done] many times before. We expect this increase to occur before the U.S. government is unable to pay its bills."

Bullard, Kashkari hint at more rate hikes

Meanwhile, ahead of Wednesday's release of the minutes from the Fed's May meeting, St. Louis Fed President James Bullard said that he thinks inflation is "hanging up too high," and that the central bank should keep raising interest rates. Separately, Minneapolis Fed President Neel Kashkari told CNBC that even if there's a pause in rate hikes at the next Fed meeting in June, it doesn't mean "that we are done with our tightening cycle."

In single-stock news, Micron Technology (MU) tumbled 2.9% after China over the weekend banned the sale of the company's memory chips to several of the country's tech firms due to what it says is a security risk. Mark Murphy, chief financial officer at Micron, said they don't know why China initiated the ban, but estimated a low- to high-single-digit percentage impact to revenue.

As for the major indexes, the Nasdaq Composite rose 0.5% to 12,720, while the S&P 500 eked out a marginal gain to 4,192. The Dow Jones Industrial Average, on the other hand, slipped 0.4% to 33,286, as Nike (NKE) fell 4.0%. The athletic apparel and footwear retailer was downgraded to Sell at Williams Trading, with the firm citing a "choppy" recovery in China.

The best defensive ETFs

While today's price action was relatively muted, uncertainty surrounding the debt ceiling and the Federal Reserve's future plans for interest rates has the potential to spark market volatility.

As we've mentioned several times in this space, one of the best courses of action for risk-averse investors to take in this type of environment is a more defensive approach with their portfolio. Seeking out the best dividend stocks, or yield-friendly utility stocks or real estate investment trusts (REITs) are just a few ways to guard against a roller-coaster market.

Another tack is to take a broader approach with the best defensive ETFs. While these funds can cover a number of strategies, they are all designed to provide stability against any additional turbulence.

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With over a decade of experience writing about the stock market, Karee Venema is an investing editor and options expert at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at Schaeffer's Investment Research. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.