Debt ceiling crisis hangs over markets, with investors hoping to avoid a repeat of 2011

Published Sat, May 13 202310:00 AM EDTUpdated Sat, May 13 202310:25 AM EDT

As the market assesses the past week and looks to the next, Wall Street is focused on the uncertainty around the debt ceiling standoff in Washington and mounting worries a recession is looming. A meeting between President Joe Biden and congressional leaders of both parties, which was supposed to take place Friday, is now set for early in the week . At stake is a deal to increase the nation's borrowing limit, which needs to be reached by June to avoid a historic U.S. default. Republicans, led by House Speaker Kevin McCarthy, want to attach spending cuts to any agreement to raise the debt ceiling. Biden and the Democrats say they are willing to talk about spending cuts but only outside the debt ceiling discussions. Raising the debt ceiling would allow the government to pay for spending that has already occurred. With both sides threatening default, Jim Cramer said this past week that such rhetoric is very damaging and could cause a recession. This is "not a great time" for the market, he added, fearful of a 2011 repeat . That year, the debt ceiling was raised at the last minute but not before a summer of bickering sent the S & P 500 down 17% from late July to mid-August. Along the way that summer, Standard & Poor's took an unprecedented step and downgraded the United States' AAA credit rating. The market this past week stumbled with the debt ceiling deadline looming and over concern about regional bank failures. The Dow Jones Industrial Average and the S & P 500 closed lower Friday and lower for the second straight week. The Nasdaq finished down Friday but gained ground for the third week in a row. While recession fears persist, a soft landing for the economy also remains a real possibility. There's hope the Federal Reserve in June will pause its string of interest-rate hikes to fight inflation. The central bank last week increased rates for the 10th time in a little over a year. According to the CME FedWatch tool , the market is putting better than 30% odds on a rate cut at the Fed's July meeting. We think it's still too early to start thinking about cuts, but the economic data will be the ultimate determinant. Still, it's high time for a rate-hike pause. Economic growth has already been constrained by the tightening cycle. This past week, there were further signs of cooling price pressures. On top of what central bankers have already done, tightening credit conditions due to the recent regional bank failures and the debt ceiling crisis are creating a monetary policy-like drag of their own. Any further increases in rates would be overkill. As of Friday's settle, the U.S. dollar index stood around the $102 level, marking its best weekly performance since February. Gold finished just under $2,020 per ounce. West Texas Intermediate crude suffered a weekly decline of 1.8%, marking its fourth straight negative week. The yield on the 10-year Treasury ended the week at around 3.46%. In the portfolio, off-price retailer TJX Companies (TJX), which operates T.J. Maxx, Marshalls and HomeGoods, reports quarterly earnings before the opening bell Wednesday, in a big week for retailers. Foot Locker (FL) reports before the bell Friday. Here are some of the other notable companies reporting results and the economic data to watch in the week ahead. Monday, May 15 Before the bell: Azul (AZUL), Tower Semiconductor (TSEM), Costamare (CMRE) After the bell: Nu Holdings (NU), XP (XP), Fortuna Silver Mines (FSM) Tuesday, May 16 Before the bell: Home Depot (HD), Baidu (BIDU), Tencent Music Entertainment Group (TME) 8:30 a.m. ET: Retail sales (April) 9:15 a.m. ET: Industrial production and capacity utilization (April) 10 a.m. ET: Business inventories (March) 12:15 p.m. ET: New York Fed President John Williams Wednesday, May 17 Before the bell: TJX Companies , Target (TGT) After the bell: Cisco Systems (CSCO), Synopsys (SNPS), Take-Two Interactive (TTWO) 10 a.m. ET: Housing starts and building permits (April) Thursday, May 18 Before the bell: Walmart (WMT), Alibaba (BABA), Dole (DOLE), Bath & Body Works (BBWI) After the bell: Applied Materials (AMAT), Ross Stores (ROST) 8:30 a.m. ET: Weekly jobless claims and Philadelphia Fed index (May) 10 a.m. ET: Existing home sales (April) and leading indicators (April) Friday, May 19 Before the bell: Foot Locker , Deere & Co (DE) 8:45 a.m. ET: New York Fed President John Williams Looking back Two Club holdings reported earnings this past week, as investors tried to figure out what two key reports on cooling inflation mean for the Fed's rate-hike plans at its June meeting. We also made a couple of trades. Shortly after the bell Monday , we bought 40 more shares of Caterpillar (CAT), bringing Jim Cramer's Charitable Trust's ownership of CAT to 370 shares and increasing its weighting in the portfolio to 2.99% from 2.68%. We had earmarked cash for this trade on May 1, following a first-quarter earnings pullback in the stock. On Tuesday afternoon , we used the recent weakness in Foot Locker to add to our small position and improve our average cost basis. We bought 300 more shares . The Trust now owns 1,000 shares of FL, increasing its weighting in the portfolio to 1.47% from 1.03%. We're in Foot Locker — which, as noted, reports earnings in the week ahead — for its turnaround potential under the multiyear "Lace Up" plan from CEO Mary Dillon. Like any turnaround, we acknowledge that it will take some time for improvements to materialize. But with an annual dividend yield of more than 4%, we're being compensated for our patience. Wynn Resorts (WYNN) delivered a much better-than-expected first quarter after the closing bell Tuesday. The casino operator's Las Vegas and Boston properties continued to show strength and operations in the Asian gaming hub Macao joined the party. Management reinstated a 25-cent-per-share quarterly dividend. Wynn shares closed Friday on a four-session losing streak. Perhaps profit-taking is to blame. The stock was still up 28% year to date . Before the bell Wednesday, April's consumer price index (CPI) was better than feared, at 4.9% year-over-year growth and its first sub-5% reading in two years. Most notably, shelter inflation , which has proved sticky, also slowed for the first time since February 2021. Disney (DIS) reported basically in-line fiscal 2023 second-quarter results after the bell Wednesday, thanks to strength in its theme parks business. However, a miss on subscriber count and moving pieces related to management's restructuring plan caused shares to sink on Thursday and dip on Friday, rounding out a tough week for Disney. Ahead of the release, we said it wasn't going to be the breakout quarter for Disney because CEO Bob Iger's cost-cutting and restructuring plans will take time to show up in the financials. April's producer price index (PPI) before the bell Thursday confirmed what the CPI showed the day before. The PPI increased just 2.3% year-over-year, the lowest reading since January 2021. (Jim Cramer's Charitable Trust is long TJX, FL, WYNN, DIS, CAT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Traders on the floor of the New York Stock Exchange, May 11, 2023.

Source: NYSE

As the market assesses the past week and looks to the next, Wall Street is focused on the uncertainty around the debt ceiling standoff in Washington and mounting worries a recession is looming.