The U.S. ended its fiscal year 2026 with a budget deficit of around $2 trillion.
Last Friday, the Treasury Department reported that the deficit rose from $1.775 trillion to $1.992 trillion, up by 12% Y/Y. That eclipsed the years 2020 and 2021. Those were exceptional years when the government stimulated the economy during the Covid-19 pandemic lockdown.
Bond markets will continue their sell-off that began in late June. ETF investors sold the 20+ Year Treasury Bond (TLT).
Bank stocks have pulled back since August and might continue to drop. They correctly priced in weak quarterly results. For example, JPMorgan Chase (JPM), Wells Fargo (WFC), and Bank of America (BAC) all posted results that did not meet expectations. Goldman Sachs (GS) posted strong results but still dropped.
Investors might consider ETFs whose sell-off ended. Utility stocks recently bottomed in late September. The Utilities Select Sector ETF (XLU) bottomed at $39.03. It closed at $42.21, offering a dividend nearing 3%.
Bet on U.S. Economic Growth
Expect the U.S. to spend more yearly. Interest on debt keeps rising, while Social Security and military spending rise as well. The U.S. will need growth to increase faster than that spending. That is achievable. It will need AI infrastructure spending to rise. Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG), and Meta Platforms (META) already indicated that they would spend more on capital investments.
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