Conversations around the U.S. debt ceiling are likely to pivot to a short-term debt limit increase that will lessen market fears, note Washington Policy Analysts Ed Mills and Alex Anderson.
The latest projections from Treasury and the Congressional Budget Office (CBO) put the debt ceiling “X-Date” as soon as June 1 – earlier than the markets and D.C. expected. This significantly raises the stakes on the negotiations over the course of this month, with President Joe Biden proposing a May 9 meeting between him and House and Senate leaders (the next day Congress is in session).
The new deadline not only leaves even less room for error but also increases the potential for a short-term extension to remove the risk of default while providing time for further budget negotiations. Among the key players in this debate, we are most focused on Senate Republican Leader Mitch McConnell (R-KY), who has been a key player in previous negotiations. Overall, we view the earlier “X Date” as increasing the risk to equity markets in the near term but continue to believe a deal will be struck to avoid default.
Early June “X-Date” increases drama around debt limit. The latest projections from Treasury Secretary Janet Yellen pointing to the U.S. government being unable to satisfy payments on obligations as early as June 1 or “a number of weeks later than these estimates” will increase market concern over the ability of Congress to reach a deal on a shorter than anticipated timetable. An additional analysis released by the CBO will add credibility to Yellen’s projections with the latest CBO estimates also seeing a higher risk of an exhaustion of extraordinary measures in early June due to lower-than-anticipated tax receipts in April. Alternatively, any perception that Yellen’s projections are unrealistic and are meant to serve as political leverage could poison the well during the negotiation process. Regardless, we expect Congress to now approach this issue with more urgency, with credible projections pointing to the June-July period for necessary action to avoid default.
Conversations are likely to pivot to a short-term debt limit increase that will lessen market fears. While the initial market reaction may be negative around the June projections, we expect Congress will need a longer runway, which raises the odds of a short-term debt limit extension. A pivot in this direction has recent precedent but can be viewed as more of an uphill battle with greater resistance to “clean” increases in the House. Congress temporarily extended the debt limit for two months in October 2021 as a short-term measure before extending it on a longer-term basis in December 2021. Reports indicated Republican lawmakers have considered an extension of the debt limit until September 30 over the course of this year. An extension through the fall would coincide with the FY24 government funding deadline and provides a clear catalyst to wrap-up negotiations.
Eyes on the Senate and Mitch McConnell’s demands. With negotiations not set to start until at least May 9 and an “X Date” as early as June 1, a discussion of arcane Senate procedures and timing will quickly come into focus. Generally speaking, there is likely only time for the Senate to pass a bill once, making negotiations in the Senate increasingly important. Separately, any short-term extension would likely be developed in the Senate under a deal brokered between Majority Leader Chuck Schumer and Minority Leader McConnell. Senate Republicans may once again propose a temporary filibuster rule exemption for the debt limit that allows Democrats to move an increase on a party-line vote. However, this would be tied to conditions with the 2024 race in mind that put Democratic senators from swing states in a tough political position. These policy concessions could include market-relevant provisions such as Inflation Reduction Act (IRA) repeals or guardrails. McConnell has a stronger hand in this round of negotiations as a bill voted out of the Senate would need to be approved by a House Republican majority. Notably, Senator Joe Manchin is signaling he will push for some IRA repeals as part of the debt limit process. At this stage, we view this as political messaging, given the recent announcement of West Virginia Governor Jim Justice’s candidacy against Manchin in the 2024 Senate race. However, Manchin has a demonstrated history of effectively using leverage in key legislative negotiations. ESG: The most likely target would be guardrails that limit the expansion of tax credits for EVs through economic arrangements that are not pure Free Trade Agreements (FTAs), which has been a key point of frustration for Manchin as seeks flexibility to extend applicability to the EU and Asian allies. We will be watching to see if any other policy provisions could be attached with market impact related to IRA implementation and the ultimate direction of fiscal reforms as the process comes together.
Where are we in the debt limit process? D.C. has been in the “political theater” stage of the debt limit negotiations, which is a factor that can temporarily raise market concerns. With an “X-Date” now less than a month away, we are entering into the full negotiations phase. Both Republicans and Democrats are using the issue for political messaging purposes following the passage of the House debt limit bill – an opening for negotiations with the White House and Congressional Democrats. Currently, there is a divide among Democrats on the best strategy between direct negotiations and holding to their “clean” debt limit raise stance (a position that Democrats stuck to in 2021). However, that “clean” debt limit bill moved under unique rules which suspended the filibuster – a set of events that is unlikely to be repeated given Republican control of the House. As such, we see negotiations on some fiscal reforms as the most likely (and probably necessary) path forward.
IMPORTANT INVESTOR DISCLOSURES
Analyst compensation: Research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including: i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite index and/or sector index; ii) recognition from institutional investors; iii) support effectiveness to the institutional and retail sales forces and traders; iv) commissions generated in stocks under coverage that are attributable to the analyst’s efforts; v) net revenues of the overall Equity Capital Markets Group; and vi) comparable compensation levels for research analysts at competing peer firms.
Registration of Non-U.S. analysts: The analysts listed on the front of this report who are not employees of, or associated with, RJA are not registered/qualified as research analysts under FINRA rules and are not subject to FINRA Rule 2241 restrictions on communications with covered companies, trading securities held by a research analyst account, and obligations related to identifying and managing conflicts of interest.
This global disclosure considers all entities of Raymond James and its affiliates. The jurisdiction where the analyst(s) is registered will determine what is permitted. For example, if the persons responsible for the content of this report are not licensed as research analysts in accordance with applicable rules promulgated by the regulatory organization(s) where this report is distributed, any client wishing to effect trades in any security should contact their Raymond James representative.
The analysts Ed Mills and Alex Anderson, primarily responsible for the preparation of this research report, attest to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report.
Company specific disclosures
Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors, including an assessment of industry size, structure, business trends, and overall attractiveness; management effectiveness; competition; visibility; financial condition; and expected total return, among other factors. Collectively, these factors are subject to change depending on overall economic conditions or industry- or company-specific occurrences.
Target prices: The information below indicates Raymond James’ target price and rating changes for any subject companies over the past three years.
General risk factors
Following are some general risk factors that pertain to the businesses of the subject companies and the projected target prices and recommendations included on Raymond James research: (1) Industry fundamentals with respect to customer demand or product/service pricing could change and adversely impact expected revenues and earnings; (2) issues relating to major competitors or market shares or new product expectations could change investor attitude toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation.
In the United States (or U.S.), RJA is registered with the Financial Industry Regulatory Authority (FINRA) as a member firm. RJA is responsible for the preparation and distribution of reports created in the United States. RJA is located at The Raymond James Financial Center, 880 Carillon Parkway, St. Petersburg, Florida 33716 (Raymond James Financial (RJF) Corporate Headquarters), 727.567.1000. Raymond James Financial Services, Inc., (RJFS) is registered with FINRA as a Member Firm. RJFS is located at the RJF Corporate Headquarters.
RJA non-U.S. affiliates, which are not FINRA member firms (with the exception of Raymond James (USA) Ltd.), include the following entities, which are responsible for the creation or distribution of reports in their respective areas:
In Canada, RJL is registered with the Investment Industry Regulatory Organization of Canada (IIROC) as a member firm. RJL is responsible for the preparation and distribution of reports created in Canada. RJL is located at Suite 2100, 925 West Georgia Street, Vancouver, BC V6C 3L2 (RJL Head Office), 604.659.8200. Raymond James (USA) Ltd. (RJLU) is registered with FINRA as a member firm, which is responsible for the distribution of reports created in Canada and the United States to both American clients living in Canada and Canadian clients living in the United States. RJLU is located at the RJL Head Office.
In the United Kingdom, Raymond James Financial International Ltd. (RJFI) and Raymond James Investment Services, Ltd. (RJIS) are authorised and regulated by the Financial Conduct Authority (FCA). RJFI and RJIS are located at Ropemaker Place, 25 Ropemaker Street, London, England, EC2Y 9LY, +44 203 798 5600.
This report is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in a locality, state, province, country, or other jurisdiction where such distribution, publication, availability, or use would be strictly prohibited or contrary to law or regulation. The securities discussed in this report may not be eligible for sale in some jurisdictions. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is not investment advice and does not constitute a personal recommendation, nor does it take into account the particular investment objectives, financial situations, or needs of individual clients. Information in this report should not be construed as advice designed to meet the individual objectives of any particular investor. Investors should consider this report as only a single factor in making their investment decision. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realized. Those losses may equal your original investment. Consultation with your Raymond James representative is recommended. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Nothing in this report constitutes investment, legal, accounting or tax advice or is a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you.
The information provided is as of the date above and is subject to change and may or may not be updated. This report should not be deemed a recommendation to buy or sell any security. Certain information has been obtained from third-party sources Raymond James considers reliable, but Raymond James does not guarantee that such information is accurate or complete. Persons within Raymond James may have information that is not available to the contributors of the information contained in this report. Raymond James, including affiliates and employees, may execute transactions in the securities listed in this report that may not be consistent with the ratings appearing in this report.
With respect to materials prepared by Raymond James, all expressions of opinion reflect the judgment of the Research Departments of Raymond James, or its affiliates, as of the date above and are subject to change. Raymond James may perform investment banking or other services for, or solicit investment banking business from, any company mentioned in this report.
Raymond James reports are disseminated and available to Raymond James clients simultaneously via electronic publication to Raymond James’ internal proprietary websites (RJA: RJ Client Access and raymondjames.com; RJL: RJL ECM Client Access, RJL Retail Client Access and raymondjames.ca). Not all reports are directly distributed to clients or third-party aggregators. Certain reports may only be disseminated on Raymond James’ internal proprietary websites; however, such reports will not contain estimates or changes to earnings forecasts, target price, valuation, or investment or suitability rating. Individual Raymond James associates may also opt to circulate published reports to one or more clients electronically. This electronic communication distribution is discretionary and is done only after the report has been publically disseminated via RJ’s internal proprietary websites. The level and types of communications provided by Raymond James associates to clients may vary depending on various factors including, but not limited to, the client’s individual preference as to the frequency and manner of receiving communications. For reports, models, or other data available on a particular security, please contact your Raymond James representative or financial advisor or visit for RJA: RJ Client Access and raymondjames.com; RJL: RJL ECM Client Access, RJL Retail Client Access and raymondjames.ca.
Raymond James’ policy is to update reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated in a report. Raymond James’ policy is only to publish reports that are impartial, independent, clear and fair and not misleading. Any information relating to the tax status of the securities discussed in this report is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional.
Links to third-party websites are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any third-party website or the collection or use of information regarding any website’s users and/or members. Raymond James has not reviewed any such third- party websites and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to Raymond James’ own website material) is provided solely for your convenience and information, and the content of any such website does not in any way form part of this report. Accessing such website or following such link through this report or Raymond James’ website shall be at your own risk. Additional information is available on request.
All right, title, and interest in any Raymond James reports is the exclusive property of Raymond James Financial, Inc., and its affiliates, except as otherwise expressly stated. Raymond James® is the registered trademark of Raymond James Financial, Inc. All trademarks, service marks, slogans, logos, trade dress and other identifiers, third-party data and/or market data (“intellectual property”) displayed in the Raymond James reports are the property of Raymond James, or of other parties. The names of other companies and third-party products or services or other intellectual property mentioned in the Raymond James reports may be the copyright, trademarks, or service marks of their respective owners. U.S. and foreign copyright, trademark, common law rights and statutes protect this intellectual property. You are prohibited from using any intellectual property for any purpose including, but not limited to, use on other materials, in presentations, as domain names, or as metatags, without the express written permission of Raymond James or such other party that may own the marks.
Notice to RJA PCG financial advisors – Non-U.S. securities discussed in this report are generally not eligible for sale in the U.S. unless they are listed on a U.S. securities exchange. This report may not be used to solicit the purchase or sale of a security in any state where such a solicitation would be illegal. By accessing this report, you agree to not solicit the purchase or sale of any security mentioned in the report that is not listed on a U.S. securities exchange, or is not otherwise registered under applicable state Blue Sky laws. Furthermore, you acknowledge that you will be solely responsible for any and all costs associated with the rescission of trades in unregistered securities. Please contact the International Research Liaison with any questions at 727.567.5559.
For clients of RJA: Any foreign securities discussed in this report are generally not eligible for sale in the United States unless they are listed on a U.S. exchange. This report is being provided to you for informational purposes only and does not represent a solicitation for the purchase or sale of a security in any state where such a solicitation would be illegal. Investing in securities of issuers organized outside of the United States, including ADRs, may entail certain risks.
The securities of non-U.S. issuers may not be registered with, nor be subject to, the reporting requirements of the U.S. Securities and Exchange Commission. There may be limited information available on such securities. Investors who have received this report may be prohibited in certain states or other jurisdictions from purchasing the securities mentioned in this report. Please ask your RJA financial advisor for additional details and to determine if a particular security is eligible for purchase in your state or jurisdiction.
For clients of RJFS: This report was prepared and published by Raymond James and is being provided to you by RJFS solely for informative purposes. Any person receiving this report from RJFS should direct all questions and requests for additional information to their RJFS financial advisor.
For RJA and RJFS clients in Canada: In the Canadian provinces of Alberta, British Columbia, New Brunswick, Ontario and Quebec (collectively, the “Canadian Jurisdictions”), both RJA and RJFS are relying on the international dealer exemption (the “IDE”), and RJA is also relying on the international adviser exemption (the “IAE”), pursuant to sections 8.18 and 8.26 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”). RJA and RJFS are not registered to make a trade nor is RJA registered to provide advice in the Canadian Jurisdictions. Neither RJA nor RJFS are members of the Investment Industry Regulatory Organization of Canada.
This report is intended solely for residents of the Canadian Jurisdictions who are permitted clients as set forth in NI 31-103. Neither RJA, RJFS nor their representatives are making an offer to sell or soliciting an offer to buy any security issued by an issuer incorporated, formed or created under the laws of Canada (“Canadian issuers”) and discussed in this report. Any trades by permitted clients in any securities of Canadian issuers (whether listed on a U.S., Canadian or other exchange) discussed in this report may not be made through a relationship with RJA or RJFS and shall be directed to RJL for execution. Relationships with clients residing in Canadian Jurisdictions for trading in securities of Canadian issuers must be established through a Canadian registered firm, such as RJL. For additional information regarding establishing a relationship with RJL, Canadian clients should contact 1.888.545.6624.
For clients of RJL: In the case where there is Canadian analyst contribution, the report meets all applicable IIROC disclosure requirements. RJL is a member of the Canadian Investor Protection Fund.
For clients of RJFI: This report is prepared for and distributed by RJFI, and any investment to which this report relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (High-net-worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as retail clients.
For clients of RJIS: This report is prepared for and distributed by RJIS and is for the use of professional investment advisers and managers and is not intended for use by retail clients.
For purposes of the FCA requirements, this report is classified as independent with respect to conflict of interest management. RJFI and RJIS are authorised and regulated by the FCA.
For clients of Raymond James France (RJ France): RJ France is authorised and regulated by the Autorite de Controle Prudentiel et de Resolution and the Autorite des Marches Financiers. As of 30 November, 2020, RJ France is an unaffiliated entity of Raymond James. RJ France is located at SAS, 45 Avenue George V, 75008, Paris, France, +33 1 45 61 64 90. This report is prepared for and distributed by RJ France pursuant to an agreement with Raymond James, and any investment to which this report relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in “Code Monetaire et Financier” and Reglement General de l’Autorite des Marches Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as retail clients.
For recipients in Brazil: This is a strictly privileged and confidential communication between Raymond James & Associates and its selected clients. This communication contains information addressed only to specific individuals in Brazil and is not intended for distribution to, or use by, any person other than the named addressee. This communication (i) is provided for informational purposes only, (ii) should not be construed in any manner as any solicitation or offer to buy or sell any investment opportunities or any related financial instruments, and (iii) should not be construed in any manner as a public offer of any investment opportunities or any related financial instruments. If you are not the named addressee, you should not disseminate, distribute, or copy this communication. Please notify the sender immediately if you have mistakenly received this communication.
The investments analyzed in this report may not be offered or sold to the public in Brazil. Accordingly, the investments in this report have not been and will not be registered with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários, the “CVM”), nor have they been submitted to the foregoing agency for approval. Documents relating to the investments in this report, as well as the information contained therein, may not be: (i) supplied to the public in Brazil, as the offering of investment products is not a public offering of securities in Brazil; nor (ii) used in connection with any offer for subscription or sale of securities to the public in Brazil.
For clients in Australia: Despite anything in this report to the contrary, this report is prepared for and distributed in Australia by RJFI with the assistance of RJA, and RJA at times will act on behalf of RJFI. This report is only available in Australia to persons who are “wholesale clients” (as that term is defined in section 761G of the Corporations Act 2001 (Cth)) and is supplied solely for the use of such wholesale clients and shall not be distributed or passed on to any other person. You represent and warrant that if you are in Australia, you are a “wholesale client”. This research is of a general nature only and has been prepared without taking into account the objectives, financial situation, or needs of the individual recipient. RJFI and RJA do not hold an Australian financial services license. RJFI is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) in respect of financial services provided to Australian wholesale clients under the exemption in ASIC Class Order 03/1099 (as continued by ASIC Corporations (Repeal and Transitional) Instrument 2016/396 and extended by ASIC Corporations (Amendment) Instrument 2022/623). RJFI is regulated by the UK FCA under UK laws, which differ from Australian laws. RJA is acting on behalf of RJFI with respect to distribution and communications related to this report.
For clients in New Zealand: In New Zealand, this report is prepared for and may only be distributed by RJFI to persons who are wholesale clients pursuant to Section 5C of the New Zealand Financial Advisers Act 2008.
For recipients in Taiwan: This report is being distributed to you from outside of Taiwan, and such distribution has not been licensed or approved by the regulators of Taiwan. This report is only available in Taiwan to persons who are “professional investors” (as that term is defined in the Rules Governing Securities Firms Engaging in Brokerage of Foreign Securities) and is supplied solely for the use of such professional investors. No person to whom a copy of this report is provided may issue, circulate or distribute this report in Taiwan, or make, give or show a copy of this report to any other person.
Proprietary Rights Notice
By accepting a copy of this report, you acknowledge and agree as follows:
This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate, or commercially exploit the information contained in this report, in printed, electronic, or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose.
This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec. 501 et. seq., provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works.
© 2023 Raymond James Financial, Inc. All rights reserved.
© 2023 Raymond James & Associates, Inc.
© 2023 Raymond James Ltd., Member Canadian Investor Protection Fund
Estate & Giving Determining how to address substance abuse and addiction among your beneficiaries can be...
Markets & Investing June 05, 2023 Doug Drabik discusses fixed income market conditions and offers...
Markets & Investing June 02, 2023 Review the latest Weekly Headings by CIO Larry Adam. Key...