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Economic/market tug of war.

The past six months have shown to be frustrating for lasting market returns. The S&P 500 seems to be marking time, range bound between 3700 on the low end and 4200 on the high end. Recent lows have been higher than previous ones and recent highs have likewise been higher – an encouraging technical sign. The market appears to want to break out and move higher. 

It is undeniable that economic data has begun to slow due to higher interest rates and tighter credit from recent bank failures. The good news? Earnings have been better than projected, and the consumer has continued to spend, providing fuel to our economy. 

There is a giant tug of war between those who believe things are on the upswing and those who see an impactful recession in our near future. It remains to be seen whether the optimists or pessimists will win out.

Debt ceiling debate.

The real wild card variable right now is how close we will come to going over the cliff on the debt ceiling. The longer the debt ceiling debate goes on and the less progress we make toward a resolution, the more it will be felt in the investment markets. Expect significant volatility if the debt ceiling is not raised and we go to a default scenario. This is the number one issue that could lead to a materially painful selloff in equity markets.

Interest rates.

The Federal Reserve meets next week to discuss raising interest rates yet again. Another quarter point increase in rates is the most likely outcome, with a break afterwards, to allow the tightening to work its way through the system. If inflation continues to moderate, the Fed should stand pat on future rate increases through year end.