May commentary: Staring at the ceiling

Global equity markets overall experienced a modest downturn in May amid periods of volatility in response to the latest developments in the politically charged debt-ceiling standoff in the U.S., ongoing concerns about the stability of U.S. regional banks, as well as economic data. Developed markets slightly outperformed emerging markets. The Far East garnered a moderately positive return and was the top-performing region among developed markets in May attributable primarily to strength in Japan. Europe was the primary market laggard due to weakness in Belgium and Portugal. Despite posting a negative return, Latin America was the top performer within the emerging markets in May, buoyed by the relatively strong performance of Brazil. Conversely, the Europe, Middle East and Africa (EMEA) region saw a significant downturn and was the weakest performer among emerging markets as stock prices in South Africa fell sharply over the month.¹

President Joe Biden and Kevin McCarthy, Speaker of the U.S. House of Representatives, reached an agreement on raising the $31.4 trillion debt ceiling during the last week of May. The debt ceiling is the total amount of money that the U.S. government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. Failing to increase the debt limit would cause the government to default on its legal obligations. Both the U.S. House of Representatives and the Senate passed the debt-ceiling legislation by wide margins, with strong support from Republicans and Democrats. The bill suspends the debt ceiling through 1 January 2025, maintains non-military spending close to current levels for the 2024 fiscal year, which begins in October, and implements a 1% cap on increases in non-military spending for the 2025 fiscal year. The fast-track approval of the legislation, which Biden subsequently signed into law, enabled the government to avoid a potential default on its debt on 5 June, the “X-date” on which Treasury Secretary Janet Yellen had warned that the U.S. would no longer be able to meet its financial obligations. During a nationally televised address following the vote in the Senate, Biden said, “No one gets everything they want in a negotiation, but make no mistake: This bipartisan agreement is a big win for our economy and the American people.”

1. All equity market performance statements are based on the MSCI All-Country World Index (ACWI).

Disclosures
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding SEI’s portfolios or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts. 

There are risks involved with investing, including loss of principal. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments.

Diversification may not protect against market risk. Past performance does not guarantee future results. Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index. 

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