In the wake of the Silicon Valley Bank failure, and ahead of a potential debt ceiling showdown, capital markets were relatively calm in April. Stocks and bonds finished moderately higher as investors maintained their expectations that the Fed would pursue one more 25bp rate hike before pausing and ultimately beginning a descent toward the end of this year.

With about half of the S&P 500 reporting so far, blended earnings are on track to decline by 3.7%, according to FactSet.¹ While this would mark a second straight quarter of declines, it is largely better than expected. A dreaded “earnings cliff” failed to materialize. Results from most of the mega-tech companies were particularly impressive, helping drive outperformance from growth and large cap. Small cap stocks as measured by the Russell 2000 were down for the month.

How the debt ceiling may impact investors

Regarding the debt ceiling, the good news is that the important political figures are starting to comment on it. In our view, if the key players are well known to the public, they will have greater incentive not to let the situation derail. We continue to believe there is a small but very real possibility that the U.S. may technically default. However, we expect that if that were to occur, a resolution would be reached within days, not weeks, and that all investors would be made whole. Still, we may see increased volatility as we approach a deadline. The specific date the government will run out of funds is still unknown but could be as early as June.