In the very near future, possibly as early as today, the US is expected to hit its outstanding statutory debt limit, a staggering $31.4 trillion dollars. The debt limit caps the total dollars the US can borrow to meet its obligations. Obligations include payments on our debt, Social Security, Medicare benefits and military salaries to name a few.
The US Treasury will take several "extraordinary" measures to buy additional time. These measures include redeeming existing and suspending new investments in the retirement and disability fund for Civil Service and Postal Service retirees and suspending reinvestment of the Government Securities Investment Fund of the Federal Employees retirement system. After the debt limit impasse is ended, these programs will be made whole.
It's estimated these extraordinary measures will be exhausted by June.
I wanted to bring this to everyone's attention as this will be a highly debated topic that could have an impact on market volatility in the coming months. Congress is politically divided and negotiations on addressing the debt ceiling could take months. While troubling, it's not an uncommon event. The chart below details the 20 funding gaps incurred since 1976 and the length of time the government shut down under until a new debt limit has been passed.
A second chart looks at the S&P's performance the week prior to a shutdown and the month after a shutdown. While uncertainty around these events often heightens short-term volatility, historical evidence suggests a modest impact on the market's directions.
We are keeping a keen eye out this issue and will continue to keep you posted.
This material contains the current opinions of the author but not necessarily those of The Guardian Life Insurance Company (Guardian), New York, NY or its subsidiaries and such opinions are subject to change without notice.
This material is intended for general public use and is for educational purposes only. By providing this content, Park Avenue Securities LLC is not undertaking to provide any recommendations or investment advice regarding any specific account type, service, investment strategy or product to any specific individual or situation, or to otherwise act in any fiduciary or other capacity. Please contact a financial professional for guidance and information that is specific to your individual situation. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. The Hang Seng Index is a free float-adjusted market-capitalization-weighted stock-market index in Hong Kong. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Each company's security affects the index in proportion to its market value. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit and inflation risk. Equities may decline in value due to both real and perceived general market, economic and industry conditions Opinions expressed are those of the author and not necessarily those of Guardian or PAS.
2023-149529 Exp 01/25
Source CBO BoFa Research, Dow Jones Market Data
Jeremy has been in the financial advisory business since 2005 after graduating from Fordham University’s School of Business. He joined Tomoro as a managing partner in 2014. During his tenure, Jeremy has consistently excelled as an advisor in both the personal household and business planning arena. As a managing partner, Jeremy also serves as a mentor to all associates and is hands-on in supporting Tomoro’s growth planning. He has completed various curriculums and certifications, such as New York University’s graduate studies in financial planning, is a Certified Exit Planning professional, and Investment Advisor Representative. He and his family reside in Colts Neck, NJ.
Registered Representative and Financial Advisor of Park Avenue Securities and Financial Representative of Guardian, AR insurance license #8401385 CA insurance license #0F94382
The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The Index focuses on the large-cap segment of the U.S. equities market. The Hang Seng Index (HSI) is a market-capitalization-weighted stock market Index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong.
Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. Equities may decline in value due to both real and perceived general market, economic, and industry conditions.
Statistics sources from Central Bank Rates and Bloomberg.