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  • Writer's pictureHolzberg Wealth Management

U.S. Reaches the Debt Ceiling Limit. What Is It and How Does It Impact Investing?

HWM Market Recap - February 2023

Holzberg Wealth Management Newsletter
Executive Market Summary

Last month we alerted our readers to look out for the upcoming debate on raising the federal debt ceiling. Here we are, and it has already taken on much of the daily news cycle.

The debt ceiling is the cap on the amount of debt outstanding, and it can only be increased by an act of Congress approved by the president. The current debt limit is $31.4 trillion, which breaks down to $95,000 per U.S. citizen or $250,000 per taxpayer. The federal government’s ability to issue new debt expired a few weeks ago, on January 19th. For the time being, the U.S. Treasury is paying its bills by taking ‘extraordinary measures,’ like selling assets and borrowing money from various previously allocated accounts – which will be returned later.

$31.4T is already a lot of money and is expected to be raised even further once agreed upon. The concept of this much money can be challenging to grasp, so how much is one trillion? To illustrate:

  • One trillion seconds ago was about 29,665 B.C.E. (equivalent to 31,688 years, or 24,000 years before human civilization). One trillion minutes is about 1.9 million years.

  • $1 trillion stacked in $100 bills would be about 630 miles tall, more than twice as high as the International Space Station.

Now multiply those numbers by over thirty-one times and consider further that the debt is growing at over one trillion dollars per year. Moreover, our annual interest expense is over $400 billion and growing rapidly. This is due to both the increasing debt accumulation and rising interest rates. The U.S. federal debt ratio to the size of our economy is 120%, up from 59% in 2000. The higher this percentage, the more the debt burden inhibits the economy’s growth.

In 2000 the national debt was $5T. In 2008 $10T. In 2016 $20T. In 2020 $27T. Now it’s over $31T. Additionally, much greater than the current debt are the unfunded liabilities, which include pre-existing federal government commitments to pay money from future taxes and borrowing. The current balance of unfunded liabilities is another $180 trillion for things like Social Security, Medicare, veterans benefits, federal pensions, and interest on the debt. (These numbers can be followed in real-time on the U.S. Debt Clock).

This is to point out that the debate over the country’s debt is legitimate and necessary. Reasonable people disagree on what to do; further, the politics and the economics of the debt ceiling often work at cross purposes. While we all live through the escalating news flow on the topic, we must navigate our investment portfolios by adjusting to important developments and disregarding political noise. We do this by understanding the issues and evaluating the events unfolding.

The underlying debate is over the size and role of the government. From a size perspective, some believe that the government that governs least governs best, while others see expanded government as a way of improving things. Regarding the role of government, some believe that more money should be allocated to the military and less to social programs, while others have the opposite view. The looming debt ceiling realities are forcing and sharpening this debate. In the end, compromises will be reached, the bills will be paid, and the sun will rise in the east.

A frequently debated topic arises regarding remedying the mounting debt brought on by federal spending: Will the government have to cut Social Security and Medicare? First and foremost, if Social Security and Medicare laws are to change, both parties must vote to do so. Social Security is the largest federal expenditure, and benefits are not going down; in fact, they were just increased. When it comes to Medicare, the fastest-growing entitlement program, adjustments frequently occur. Nonetheless, Medicare and the various welfare programs are not going away either.

The bigger question concerns whether any progress will be made to better balance the money the government spends with the revenues it receives. Currently, the federal government is spending about $6 trillion per year, while it only takes in revenues of about $5 trillion, of which again about $400 billion (and rising) is interest payments. Clearly, fiscal reform is necessary.

Even though politicians will say and do just about anything to achieve their objectives, they will endeavor to make good on the big issues – things like paying off debt on time to honor the full faith and credit of the United States, maintaining the dollar’s status as a reserve currency, and funding entitlement programs like Social Security, Medicare, Medicaid, etc. This is mainly true because most people who receive government payments also vote, and votes are the coin of the realm. For this reason, short to intermediate-term solutions will be found, but most likely not until the last minute or even slightly beyond the last minute. This is to say that the ‘last minute’ is not some precise moment in time but rather a moving target that goes from, let’s say, June into the fall.

From a macroeconomic perspective, the markets have made a solid beginning to the year even though the economy continues to weaken. In addition to the debt ceiling debate, plenty of developing stories could lead to substantial market volatility, including the continued war in Europe, energy and food insecurity, a global recession, etc. Our cautious stance over the past year has served us well. The good news is that we are beginning to see some longer-term improvements that should be realized later this year or next year – more about this in coming newsletters.

​Markets Overview

Monthly Changes in Major Indices

  • S&P 500: +4.64%

  • Dow Jones Industrial Average: +1.8%

  • Nasdaq Composite: +8.86%

Monthly Performance By Sector

  1. Communication Services (XLC) +13.45%

  2. Consumer Discretionary (XLY) +12.55%

  3. Real Estate (XLRE) +7.85%

  4. Technology (XLK) +7.72%

  5. Materials (XLB) +6.60%

  6. Financials (XLF) +5.44%

  7. Industrials (XLI) +1.96%

  8. Energy (XLE) +1.89%

  9. Consumer Staples (XLP) -2.17%

  10. Utilities (XLU) -2.72%

  11. Health Care (XLV) -3.12%

Monthly Top 5 Performers

Communication Services (XLC) +13.45%

After being the worst-performing Sector in 2022, Communication Services had a big month, with fifteen stocks in the sector finishing the month up double digits. The top performers in the sector included: Warner Bros Discovery Inc (+51.69%), Paramount Global (+33.95%), Match Group Inc (+26.30%), The Walt Disney Co (+23.84%), and Meta Platforms Inc (+22.20%).

Consumer Discretionary (XLY) +12.55%

Consumer Discretionary also performed poorly in 2022 but had a great first month of 2023. Its leaders included: Tesla Inc (+35.30%), Carnival Corp (+32.01%), Expedia Group Inc (+31.92%), Royal Caribbean Group (+27.47%), and Pool Corp (+24.53%).

Real Estate (XLRE) +7.85%

Real Estate climbed to the third-best-performing sector in January. Its leaders included: Host Hotels & Resorts Inc (+15.45%), Vornado Realty Trust (+14.39%), Vents Inc (+13.83%), Welltower Inc (+13.68%), and Prologis Inc (+13.36%).

Technology (XLK) +7.72%

Technology finished off the month strong, with its top performers being: Western Digital Corp (+40.22%), NVIDIA Corp (+31.12%), Seagate Technology Holdings PLC (+26.90%), Salesforce Inc (+24.26%), and Micron Technology Inc (+23.47%).

Materials (XLB) +6.60%

Materials had a nice up month, with its leaders including: Nucor Corp (+26.22%), Albermarle Corp (+25.42%), Celanese Corp (+19.28%), Freeport-McMoRan Inc (+16.13%), and Dow Inc (+15.00%).

Political Events Influencing the Economy
  • A Bank of America survey of over 2,000 individuals asked about their 2022 versus 2023 savings goals. Most participants' resolutions remained unchanged, except for one significant difference: 22% of respondents said that saving for retirement was a goal for 2023, compared to 44% who said the same for 2022. According to Fidelity Investments, the largest provider of 401(k) plans, the average 401(k) balance was down 23% from a year ago as of the end of the third quarter in 2022. The average IRA was down 25% year-over-year.

  • The unemployment rate is 3.5%, matching its lowest level since 1969, having fallen even as the labor force expanded by 439,000 workers. This low jobless rate might fuel concerns at the Fed that the job market is too tight and could further inflation.

  • The big banks weigh in on their economic outlooks for 2023:

    • J.P. Morgan: "Near-term recession is too close to call. However, lower inflation and slower growth over the next few years seem very likely."

    • Goldman Sachs: "The U.S. should narrowly avoid recession as core [personal consumption expenditures (PCE)] inflation slows from 5% now to 3% in late 2023 with a [half percentage point] rise in the unemployment rate... We now see the Fed hiking another 125 [basis points (1.25%)] to a peak of 5-5.25%. We don't expect cuts in 2023."

    • Citi: "Markets in 2023 will lead the economic recovery we foresee for 2024. Therefore, we expect that 2023 may ultimately provide a series of meaningful opportunities for investors who are guided by relevant market precedents. First, though, we need to get through a recession in the U.S. that has not started yet." They go on to say that they expect nominal spending growth to reduce by half, U.S. unemployment to increase above 5%, and the demand for labor to decrease to slow services inflation.

  • Amazon announced the launch of RxPass, a $5 per month add-on fee to Prime memberships that provides subscribers access to 50 generic prescription drugs. According to Amazon, about 150 million U.S. residents have a prescription for one of the drugs included in RxPass, and users can save up to 68% on each medication. Unfortunately, the service is unavailable to Medicare or Medicaid patients and doesn't offer insulin.

  • Pending home sales increased by 3% in December, the first monthly increase since October 2021. However, new listings posted their largest annual decrease since the start of the pandemic.

  • Investors were surprised in January as on the 24th, multiple stocks' charts exhibited strange patterns, including inexplicable sharp increases or decreases. The unusual activity was later deemed a glitch caused by a "manual error." The New York Stock Exchange issued a statement claiming: "The root cause was determined to be a manual error involving the Exchange's Disaster Recovery configuration at system start of day."

  • Thirty years ago this month, a giant plastic spider hung from the ceiling of the American Stock Exchange, marking the first exchange-traded fund (ETF) launched in the U.S. The Standard and Poor's Depositary Receipts, or SPDR (pronounced spider), had $6.5 million in assets when it started. Now known as the SPDR S&P 500 ETF, it is currently the world's largest ETF, with $375 billion in assets. There are over 3,000 U.S.-listed ETFs today, which have amassed $6.5 trillion in assets. While mutual funds still have three times the amount of assets as ETFs, $600 billion was invested in U.S. ETFs last year, and almost $1 trillion was pulled out of mutual funds.

  • U.S. gross domestic product (GDP) grew at a 2.9% annualized pace in the fourth quarter of 2022.

  • The average rate on a 30-year fixed mortgage declined to 6.15%, up from 3.56% a year ago, but their lowest level since September.

  • Increased mortgage rates caused would-be homebuyers to remain renters. According to Moody's Analytics, the national average rent-to-income ratio (RTI) reached 30%, the highest since they started tracking the statistic over twenty years ago. RTI is up 1.5% year-over-year and 0.2% from the third quarter of last year. The metropolitan areas with the largest RTI included: New York, where the average monthly rent accounted for 68.5% of the median income, Miami (41.6%), Fort Lauderdale (36.7%), and Los Angeles (35.6%). These RTIs fail the Department of Housing and Urban Development's definition of affordable housing, which outlines that the occupant should pay at most 30% of annual gross income for housing, including utilities.

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About the Author

Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.

** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions.


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