In the weeks leading up to the U.S. debt ceiling limit, market volatility weakened. Investors correctly bet that the government would agree on the terms of the debt.
Last Sat., June 3, 2023, President Joe Biden signed the legislation. It increases the nation’s debt ceiling, increasing the limit until 2025. This is after the next presidential election.
The spending cut and goals to reduce the deficit create winners. The deal will end the student debt repayment pause. SoFi (SOFI), a fintech, peaked at over $22 and traded as low as $4.24. Short sellers have an 11.91% short float against the stock. Expect Sofi’s revenue from student-related debt to rebound.
Defense and aerospace benefits. The spending cut will not hurt the government’s investment in military equipment and services. Raytheon (RTX) and Lockheed Martin (LMT) should rebound from here.
In the bond market, US treasuries might recover. The longer-term bond ETFs like the 20+ Year (TLT) could bounce from current levels.
Losers
The package fast-tracked the natural gas pipeline in Appalachia. This sets environmental advocates a step back. Still, speeding up the process for energy projects will help clean energy stocks.
Your Takeaway
Risks from the U.S. defaulting are off the table. This will justify the 9-month-long rally in the S&P 500 (SPY).
