The Weekend Edition is pulled from the daily Stansberry Digest.

Just like that...

Over the past two weeks, the S&P 500 Index has left the bumpy road it had followed since early December... climbing smoothly back to new all-time highs. The U.S. benchmark index closed at a new record on Thursday.

As of Tuesday, 60% of S&P 500 stocks are back trading above their 200-day moving averages. The 200-day moving average is a measure of a long-term technical trend and a sign of improving market "breadth" or health.

This is the most stocks above this average that we've seen in more than a month.

And one way or another, this past week sure looks like a significant turning point. For the sixth straight day, more than two-thirds of S&P 500 stocks closed higher Tuesday. According to technical analyst Frank Cappelleri, that hasn't happened in more than 30 years.

You can take this behavior at least two ways...

One is that "animal spirits" have indeed returned to the market with Donald Trump's return to the White House. Another is that the "surprise" from the Federal Reserve last month, projecting fewer rate cuts and high(er) inflation in 2025, has worn off.

Perhaps it's a bit of both. And another factor appears to be playing a role as well.

Trump, Part II, continued...

On Tuesday evening, Trump discussed a subject our team has covered extensively: the intersection (and growing demand) of artificial intelligence, energy, and infrastructure.

Trump stood at the White House with the CEOs of Oracle, OpenAI, and SoftBank, and announced that they, with Middle East-based AI firm MGX, were committing to spend up to $500 billion over the next four years on what's being called "Stargate."

According to announcements about the project, the idea is to build new infrastructure (data centers and electricity generation) for OpenAI in the U.S.

The initial investors have agreed to put $100 billion to work immediately, starting in Texas. At least 10 new AI-focused data centers are planned to go up in the state, including one that's already under construction in the city of Abilene.

According to OpenAI's announcement...

This project will not only support the re-industrialization of the United States but also provide a strategic capability to protect the national security of America and its allies.

As for the government's role, Trump said he wants to help make it easier to "get this stuff built... They have to produce a lot of electricity, and we'll make it possible for them to get this production done easily, at their own plants if they want." He also said the projects will happen at other to-be-determined locations "nationwide." Taxpayer dollars do not appear to be directly involved in the project.

Additional partners in the proposed project are said to be Microsoft (MSFT) and chipmakers Nvidia (NVDA) and Arm.

To me, it sounds like the companies involved – and perhaps others interested in building data centers and AI-related infrastructure – could expect to move forward without much regulatory resistance.

But then things got weird...

Interestingly, Elon Musk, part of Trump's inner circle, was publicly critical of the legitimacy of this Stargate project.

Late Tuesday night, Musk wrote on his social platform X that SoftBank doesn't "actually have the money... SoftBank has well under $10B secured. I have that on good authority." Well, that seems odd.

Open AI CEO Sam Altman responded...

Wrong, as you surely know. want to come visit the first site already under way? this is great for the country. i realize what is great for the country isn't always what's optimal for your companies, but in your new role i hope you'll mostly put first.

Are you confused? I'm confused. And so are people involved in the deal, evidently. Microsoft CEO Satya Nadella told CNBC, "All I know is I'm good for my $80 billion."

Now, Musk and Altman have beef with each other going back some time and are involved in an ongoing lawsuit against each other, but this public drama is strange.

I don't know if Musk is trying to lose his job heading up the Department of Government Efficiency ("DOGE") and his relationship with Trump, but I suspect we'll find out soon enough.

What's clear: Either way, you can see a growing push for AI infrastructure in this country.

Yet again, Congress is playing dangerously close to the debt-ceiling deadline...

Last Friday, then-Treasury Secretary Janet Yellen said the Treasury would begin taking "extraordinary measures" in order to avoid reaching the government's debt ceiling of $31.4 trillion.

First off, we have to laugh at the timing of the announcement...

Yellen made the comments after Friday's market close, and with only a few days left in her tenure as Treasury secretary. And the "measures" started on Trump's first full day in office.

Practically speaking, Yellen directed the Treasury to pick and choose which of its bills it deems most important to pay so the U.S. doesn't default on its obligations. That means things like reinvestments in federal employees' retirement plans get suspended.

We've been down this road before, so don't worry too much...

This is the third time in the past four years that the U.S. has reached its congressionally approved spending limit. Put simply, the "debt limit" is the maximum amount of money the U.S. government can borrow to pay for previously approved spending bills and programs.

Raising the debt limit doesn't authorize new spending. But it allows the government to finance existing obligations that Congress and presidents have made in the past. And Congress has continually voted to increase this limit whenever it becomes an issue.

For this reason, the headlines about the debt ceiling are worse than the reality. In the end, the result is always the same...

Since 1960, Congress has raised the debt ceiling 78 times. That's an average of 1.2 times per year over that period. And it comes under both parties... 49 times under Republican presidents and 29 under Democratic ones.

Once the debt ceiling is inevitably raised, the government hits the debt markets to raise money. It sells Treasury securities that pay interest, thus creating more debt. And on it goes.

Federal spending has followed the debt ceiling higher...

Total government outlays were $77 billion in 1960. In 2024, they came in at $6.8 trillion. The Congressional Budget Office ("CBO") sees that surging to more than $10 trillion by 2035.

The better news is, revenue is expected to grow, too... but still not at the same pace. The CBO projects revenues of $8 trillion in 2035, versus $4.9 trillion in 2024.

Spending rising faster than revenue means higher deficits... And that could spell trouble for the U.S. government's credit rating.

What would a downgrade mean for the U.S.?

For one, it would mean that the credit-ratings agencies believe the U.S. government is less creditworthy than companies like Johnson & Johnson (JNJ) and Microsoft, which both boast AAA ratings.

And that could mean investors would demand higher interest rates to buy U.S. debt. That would force higher Treasury yields... increasing the burden that interest is already putting on government spending (and likely leading to volatility in the stock market, too).

In 2024, interest payments were the second-largest government outlay, behind only Social Security and ahead of Medicare and national defense.

Where we go from here...

For now, the debt-ceiling headline seems scarier than it actually is.

The Treasury has enough cash and financial maneuvers at its disposal to pay Uncle Sam's bills through possibly the middle of the year, according to estimates from the Bipartisan Policy Center.

And we don't believe Congress will let the government default on its debts. You're likely to hear hot rhetoric around the debt ceiling again at some point this year, but it's only a matter of time before we're right back where we are today.

Even if we continue to see the same song and dance, though, a bigger issue is at play here.

Spending will continue to rise, meaning the debt ceiling will need to be raised again and again. And the government will add even more debt – taking the debt-to-GDP ratio past 120%, which is already higher than it was right after World War II – and provide a tailwind for inflation.

The conclusion is the same as I wrote in the January 23, 2023 Digest...

Prepare for an economy where the debt keeps going up and up.

Maybe the much-touted DOGE can cut into spending somewhat and shrink the deficit.

On the other hand, Trump last month called for suspending the debt ceiling altogether during negotiations with Congress on a government funding bill. That would let the government borrow as much money as it wants to fund its obligations.

That's essentially what we have today in practice. The debt ceiling has proved to be a formality, though at least we see intermittent delays and debate before it's ultimately raised again.

No matter what happens, I'm willing to bet the deficit gets worse before it gets better. And it's something any administration will be dealing with for years to come.

All the best,

Corey McLaughlin

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