S&P 500 Extend Losses On Dimming Prospects of Last Minute Debt Deal

Barry Adams
24 May, 2023
New York City

U.S. stocks spent most of the session in the negative territory after debt ceiling talks stalled and Fed minutes showed a slight tilt in favor rate hike pause at the next meeting. 

Political leaders of both parties sent mixed signals about the debt ceiling talks and negotiators are showing no real sense or urgency, indicating that a deal may be struck only in the final hours of the deadline. 

Republicans are also questioning the possible federal government default date around June 1 and several far right Republican congressmen are asking for deeper cuts in federal government spending. 

For the agreement to become a bill, negotiators have to strike a deal by tomorrow, which is looking unlikely after House Speaker McCarthy confirmed that negotiations are struck on spending levels. 

President Biden has offered to freeze spending over the next two years and rescind spending COVID funds that have not been spent so far. 

Higher debt limit does not mean higher spending, the deal only increases the limit to cover the federal government spending that is already authorized by the Congress. 

The debt ceiling talks are turning into budget talks as lawmakers of both parties jockey to preserve their preferred programs

Federal Reserve officials were divided at the last rate setting meeting with "several" members advocating a rate hike pause because the economy is slowing and additional "policy firming" may not be necessary "after this meeting." 

The minutes of the meeting also noted "some" members noted that inflation was cooling at "unacceptably slow pace" and a rate hike may be necessary at the next meeting. 

  

U.S. Indexes & Yields 

The S&P 500 index decreased 0.7% to 4,115.26 and the Nasdaq Composite fell 0.6% to 12,486.56.

The yield on 2-year Treasury notes increased to 4.30%, 10-year Treasury notes edged up to 3.69% and 30-year Treasury bonds held at 3.94%. 

Crude oil rose $1.02 to $73.92 a barrel and natural gas prices rose 5 cents to $2.37 a thermal unit. 

 

U.S. Stock Movers 

Lowe's Companies declined 1.6% to 12,461.55 after the home improvement retailer reported better-than-expected sales and earnings but the company lowered its annual outlook. 

Abercrombie & Fitch Company soared 24.5% to $28.64 after the specialty apparel retailer reported higher-than-expected profit and lifted its full-year outlook. 

Kohl's Corporation soared 10.1% to $21.21 after the department store chain reported better-than-expected quarterly results. 

Sales in the first quarter declined 3.3% from a year ago $3.36 billion and net income was unchanged at $14 million and diluted earnings per share fell to 11 cents from 13 cents a year ago. 

Zoom Video Communications Inc declined for the second day in a row and fell to $64.26 after the company reported higher sales but a sharp plunge in earnings. 

Earnings in the first quarter declined to $15.44 million from $113.66 million and diluted earnings per share plunged to 5 cents from 37 cents a year ago. 

BJ's Wholesale Club Holdings Inc decreased 1.5% to $63.80 after the membership warehouse club reported weaker-than-expected sales. 

Revenue in the first quarter increased to $4.72 billion from $4.49 billion and net income increased to $116.0 million from $112.4 million and diluted earnings per share rose to 85 cents from 82 cents a year ago. 

Children's Place Inc plunged 24.7% to $17.93 after the specialty retailer reported a decline in earnings and a loss in the first quarter. 

Revenue declined 11.2% to $321.64 million from $362.35 million and the retailer swung to a net loss of $28.83 million compared to a profit of $19.83 million and diluted earnings per share was ($2.33) compared to $1.43 a year ago. 

 

European Markets Drop 2% On U.S. Debt Default Worries 

European stocks turned sharply lower on the lack of progress in the U.S. debt ceiling talks. 

Benchmark indexes in Frankfurt and Paris dropped 1.7% as debt ceiling talks appear to stall. 

The U.S. federal government is expected to default on its obligation sometimes in the first two weeks in June. 

In addition, three leading rating agencies remained silent on the the U.S. debt rating outlook for the third week in a row, indicating their double standards while reviewing sovereign debts. 

Financial services and energy explorers were among the leading decliners amid the U.S. debt ceiling talks uncertainties and bond yields continued to advance in Europe and in the U.S. 

 

UK Inflation Slows to 8.7% In April 

Consumer prices rose at a slower pace of 8.7% in April from 10.1% in March, the Office for National Statistics reported Wednesday. 

Consumer inflation eased to the slowest pace since March 2022 because of a sharp slowdown in electricity and gas prices. 

Housing & utilities inflation eased to 12.3% from 26.1% in March, with the cost for electricity, gas & other fuels rising at a a slower pace of 24.3% compared to 85.6% in the previous month.

However, food and alcoholic beverages inflation hovered at 19.1%, close to record 19.2% in March. 

Core inflation, which excludes food and energy, accelerated to 6.8% from 6.2% in March, the highest rate since March 1992.  

 

Europe Indexes & Yields 

The DAX index decreased 1.9% to 15,842.13,  the CAC-40 index fell 1.7% to 7,253.48, and the FTSE 100 index dropped 1.8% to 7,627.10. 

The yield on 10-year German Bunds inched up to 2.43%, French bonds traded higher to 3.01%, the UK gilts inched higher to 4.20% and Italian bonds increased to 4.29%.

The euro edged lower to $1.076, the British pound to $1.236 and the Swiss franc to 90.22 cents.

Brent crude increased $1.05 to $77.87 a barrel and the Dutch TTF natural gas decreased €1.22 to €27.91 per MWh.

 

Europe Stock Movers 

Tullow Oil Plc edged up a fraction to 25.01 pence after the UK-based oil company lifted its full-year crude oil production outlook. 

Kingfisher Plc declined 1.9% to 242.10 pence after the UK-based home improvement chain reported comparable same store sales decreased in the first quarter. 

Aviva Plc declined 5.3% to 401.38 pence after the financial services company reported a slowdown in asset inflow in its wealth management division. 

Ricardo Plc declined 0.4% to 570.01 pence after the UK-based engineering  company reiterated its full-year outlook.