Wall Street Pins Hopes On U.S. Debt Deal This Weekend, S&P 500 and Nasdaq Extend 2-day Rally

Barry Adams
18 May, 2023
New York City

Stocks on Wall Street traded higher for the second day in a row on the hopes that lawmakers are on track to conclude debt ceiling talks and avert the U.S. government default. 

The S&P 500 index and the Nasdaq Composite index gained as much as 1% after the market rally broadened to regional banks, technology and resource sectors. 

Energy and commodities gained on the hopes of higher demand from China and Asia as economies in the region continue to expand at a faster clip. 

Investors have been increasing exposure to stocks in cautious trading on the hopes that President Biden and House Speaker Kevin McCarthy are likely to strike an agreement as early as this weekend, just in time to avert catastrophic debt default. 

Despite the prevailing optimism, any agreement between the two leaders will need approvals from the U.S. House and the Senate in the next two weeks. 

A faction of the Republican Party in the U.S. House is not fully on board to lift the debt ceiling, and a last minute disagreement could derail a compromise struck between the two leaders. 

The yield on 10-year Treasury notes rose to a 2-month high and jumped above 3.60% after the rate hike at the next Fed's policy meeting was back on table. 

Dallas Fed President Lorie Logan said policy makers are looking ahead to the inflation and employment data for the month of May and the economic data released so far do not support the case to pause rate hikes yet. 

The Federal Reserve's rate setting committee is scheduled to announce its rate decision after a two-day meeting on June 14. 

In overseas trading, European markets soared 1.5% and traded near record highs on the hopes that the U.S. lawmakers will set aside differences and come to an agreement. 

Markets in Tokyo extended recent gains to a new 32-year high and indexes in India inched closer to record highs but indexes in Hong Kong and Shanghai traded lower on the worries of uneven economic rebound. 

 

Initial Weekly Jobless Claims Unexpectedly Declined 

Initial jobless claims for the week ending on May 13 declined 22,000 to 242,000, the U.S. Labor Department reported Thursday. 

The 4-week moving average was 244,250, a decline of 1,000 from  the previous week's unrevised average of 245,250. 

The jobless claims unexpectedly declined in the previous week, indicating labor market conditions remained tight and upward wage pressures are likely to persist. 

The advance number for seasonally adjusted insured unemployment during the week ending May 6 was 1,799,000, a decrease of 8,000 from the previous week's revised level. 

The previous week's level was revised down 6,000 from 1,813,000 to 1,807,000. 

 

Existing Home Sales Dropped In April 

U.S. existing home sales declined for the second month in a row and extended the previous twelve monthly decline in a row interrupted by the  sales increase in January. 

Existing home sales in April declined 3.4% from the previous month to an annual rate of 4.3 million, the National Association of Realtors said Thursday. 

Seasonally adjusted sales dropped 23.2% from 5.57 million in April 2022 after interest rate rose and home prices remained elevated. 

The median existing home prices declined 1.7% from a year ago for all housing types across all four regions to $388,800. 

"Home sales are bouncing back and forth but remain above recent cyclical lows. The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand," said NAR Chief Economist Lawrence Yun. 

Available homes for sale at the end of April increased 7.2% from March and increased 1.0% from a year ago to 1.04 million units, about 2.9 month supply at the current sales rate. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.4% to 4,176.76 and the Nasdaq Composite added 1.0% to 12,620.83.

The yield on 2-year Treasury notes increased to 4.18%, 10-year Treasury notes edged up to 3.60% and 30-year Treasury bonds held at 3.89%. 

Crude oil fell $0.25 to $72.56 a barrel and natural gas prices rose 3 cents to $2.39 a thermal unit. 

 

U.S. Stock Movers 

Walmart Inc increased 1.9% to $151.45 after the retailer said revenue in the first quarter increased 7.6% to $152.3 billion. 

U.S. comparable same store sales increased 7.4%, driven by 2.9% increase in number of transactions and 4.4% rise in average ticket size. 

Net income in the quarter decreased 18.5% to $1.7 billion from $2.1 billion and diluted earnings per share declined to 62 cents from 74 cents a year ago. 

The company forecasted consolidated store sales to increase 4.0% in the second quarter and 3.5% in the fiscal year 2024. 

Take Two Interactive Software, Inc soared 12.8% to $141.0 after the videogame developer reported higher-than-expected revenue in the fiscal fourth quarter. 

Revenue in the fourth quarter ending in March increased 56% to $1.45 billion from $930 million and the company swung to a net loss of $610.3 million from a profit of $110.9 million and diluted earnings per share was ($3.62) from 96 cents a year ago. 

The company forecasted net revenue in the fiscal year 2024 between $5.37 billion and $5.47 billion net loss range from $518 million to $477 million and net loss per share between $3.05 and $2.80.   

Bath & Body Works Inc soared 12.5% to $38.32 after the specialty retailer reported higher-than-expected revenue and earnings in its latest quarter. 

Synopsys Inc increased 2.7% to $387.48 after the electronic design automation software developer reported quarterly results that were ahead of expectations. 

Revenue in the fiscal second quarter ending in April increased to $1.40 billion from $1.28 billion a year ago. 

Net income in the quarter decreased to $269.9 million from $293.8 million and diluted earnings per share fell to $1.76 from $1.89 a year ago. 

The company forecasted revenue in the fiscal third quarter ending in July between $1.465 billion and $1.495 billion and earnings per share between $1.88 and $1.99. 

Cisco Systems Inc declined 4.2% after the networking gear maker reported better-than-expected revenue and earnings in the fiscal third quarter. 

Revenue increased 14% to $14.6 billion and net income increased to $3.2 billion from $2.6 billion and diluted earnings per share rose to 78 cents from 65 cents a year ago.  

 

European Indexes Trade at New Record Highs 

European stock markets rebounded in light trading after U.S. debt ceiling talk picked up pace. 

Trading was light after financial markets were closed in Nordic countries and Switzerland. 

Benchmark indexes in Germany and France traded at new highs and surpassed the previous peaks in January 2022. 

Markets advanced after the U.S. President Joe Biden and House Speaker Kevin McCarthy vowed to avoid the government default. 

Congressional leaders and Biden are expected to announce an agreement that will permit the lifting of the debt ceiling from $31.4 trillion. 

However, any agreement still needs to be approved by the U.S. House and the Senate in the next two to three weeks before the federal government runs out of funds. 

 

Spain's Trade Deficit Narrowed In March 

Spain's trade deficit narrowed in March to €0.16 billion after exports increased 17.7% from a year ago to €38.9 billion and imports jumped 3.6% to €39.09 billion.  

Exports to the European Union surged 15.4%, the United Kingdom increased 21.3%, the United States advanced 27.9%, and Latin America soared 62.7%. Exports to China increased 42.6% and Japan decreased 5.6%. 

In the first three months of 2023, exports soared 14.6% to €102.6 billion and imports decreased 6.8% to €109.2 billion resulting in a trade deficit of €6.6 billion. 

 

Italy's Trade Surplus Expanded In March 

Italy's international trade swung to a surplus of €7.5 billion in March from a deficit of €0.76 billion a year ago, the statistical office Istat reported Wednesday. 

The trade surplus accelerated from €2.1 billion in February after non-energy products exports expanded in the month. 

Trade surplus was the largest since July 2021, when the surplus reached a record high of €8.2 billion. 

Exports rose at a slower pace of 4.7% from a 10.4% rise in March and imports declined 9.8% reversing an increase of 3.2% in the previous month. 

On a seasonally adjusted basis, exports declined 2.3% and imports fell 6.5%, lifting the surplus in March to €5.54 billion from €3.5 billion in February.  

 

Europe Indexes & Yields 

The DAX index increased 1.3% to 16,163.36,  the CAC-40 index rose 0.6% to 7,446.89., and the FTSE 100 index advanced 0.3% to 7,742.30.

The yield on 10-year German Bunds inched up to 2.39%, French bonds traded higher to 2.98%, the UK gilts inched higher to 3.89% and Italian bonds increased to 4.25%.

The euro edged lower to $1.081, the British pound to $1.245 and the Swiss franc to 90.36 cents.

Brent crude decreased $1.30 to $75.65  barrel and the Dutch TTF natural gas decreased €2.17 to €29.79 per MWh.

 

Europe Stock Movers 

Deutsche Bank AG increased 3.5% to €9.72 after Germany's largest bank settled a lawsuit for $75 million brought by women who alleged that the bank facilitated sex trafficking activities of the late Jeffrey Epstein. 

Burberry Group Plc decreased 5.7% to 2,377.0 pence after the UK-based luxury apparel and accessories company reported same store sales increased 16% from a year ago. 

EasyJet Plc increased 0.8% to 524.60 pence after the deep discount airline operator narrowed its first-half loss on rising international traffic. 

BT Group Class A stock plunged 7.3% to 137.25 pence despite the UK-based telecom group reporting 5% increase in adjusted annual core earnings. 

The telecom company also announced a plan to eliminate 55,000 jobs. 

International Distribution Services Plc declined 0.7% to 220.60 pence after the parent of Royal Mail reported an annual adjusted operating loss of £419 million. 

Premier Foods Plc advanced 3.9% to 134.64 pence after the company posted strong annual profit and increased its dividend.