Market Digest – GDP Debt Percentage Crosses 100%, More Chipotle-Related Illnesses

Stocks rose modestly as earnings season hit full stride. IBM, GE and Microsoft fell short of market expectations while Netflix had its best day of the year. Driven by new all-time highs in the tech sector, the Nasdaq Composite Index rose 10 straight days before retreating modestly on Friday.

Weekly Returns:
S&P 500: 2,473 (+0.5%)
FTSE All-World ex-US: (+0.4%)
US 10 Year Treasury Yield: 2.24% (-0.09%)
Gold: $1,255 (+2.2%)
EUR/USD: $1.166 (+1.7%)

Major Events:

Monday – Tesla Names James Murdoch and Linda Johnson Rice to Board of Directors.

Tuesday – Chipotle faced another health scare and was forced to close a store in Virginia after reported illnesses.

Thursday – Anheuser Busch InBev agreed to buy Hiball, a San Francisco based energy drink company, for undisclosed terms.

Thursday – McCormick agreed to buy the foods division of Reckitt Benckiser, which includes French’s mustard, for $4 billion.

Thursday – Microsoft reported earnings and revenue numbers which beat analyst expectations, driven largely by cloud services, but shares fell modestly anyway.

Friday – White House press secretary Sean Spicer resigned after financier Anthony Scaramucci was named communications director.

Our take

Major US stock indexes hit new all-time highs this week, corporate earnings are breaking records, and unemployment is notably low. All of this should be good for the government deficit, but the red ink just keeps piling up – rapidly approaching $20 trillion in total debt. Debt as a percent of GDP crossed 100% about 5 years ago and keeps climbing. That is a big deal if you consider that in 2000, the ratio was in the 50% range. It is a little scary to think about what happens if and when the economy slows.

The government is set to run out of cash in October, but Senate Majority Leader Mitch McConnell has said he would like to vote on a higher ceiling before August recess, which brings the issue into the spotlight in the coming weeks. Debt ceiling and government shutdown threats are part of business as usual in Washington these days and the markets have largely learned to ignore them. Likely this time will be no different, but given the GOPs inability to get much of anything done recently nothing should be taken for granted.