Growing debt ceiling deal hopes send stocks higher

The Dow was down as much as 200 points by 2 pm, then zoomed up to close at a +115.  The Nasdaq and S&P spent most of the session firmly in the black but again, at 1:30 pm, took a nosedive only to turn around at 2 pm and head further into positive territory.  The one bit of bad news that could have caused the nosedive was jobless claims fell more than expected suggesting a continuing tight labor market and thus more room for more rate hikes. It was probably around 2 p.m. that the news came in that a debt ceiling deal could be reached by week’s end, thus building on yesterday’s euphoria. 

Today’s Fed comments indicate the economy is not yet softening fast enough for a pause, though the market continues to price one in.  There is a very telling graph below showing jobless claims vs planned layoffs and though layoffs do considerably outstrip jobless claims, claims are only on  a modest uptick whereas planned layoffs are dramatically declining. Volume was very close to the 4-week average at about 10.5 billion. 

Thu May 18, 2023  4:22 PM

Growing debt ceiling deal hopes send stocks higher

By Chuck Mikolajczak

DJ: 33,420.77  +408.63       NAS: 12,500.57  +157.51       S&P: 4,158.77  +48.87     5/17

DJ: 33,535.91  +115.14       NAS: 12,688.84  +188.27       S&P: 4,198.05  +39.28     5/18

May 18 (Reuters) - U.S. stocks closed higher for a second straight day on Thursday on mounting optimism that a U.S. debt ceiling deal could be reached within days, with discount retailer Walmart Inc (WMT.N) providing additional support after an upbeat annual sales forecast.  The benchmark S&P 500 index (.SPX) rebounded from early declines on news that top U.S. congressional Republican Kevin McCarthy said a deal to raise or suspend the debt ceiling could potentially be reached in time to hold a House vote next week.  On Wednesday, President Joe Biden and McCarthy reiterated their aim to strike a deal soon to raise the $31.4 trillion federal debt ceiling and agreed to talk as soon as Sunday.  "Today and yesterday it's really been about some easing pressure from the debt ceiling, McCarthy again came out expressing some optimism a deal could be formed by the end of the week, House could vote on a bill the following week," said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.

The Dow Jones Industrial Average (.DJI) rose 115.14 points, or 0.34%, to 33,535.91; the S&P 500 (.SPX) gained 39.28 points, or 0.94%, at 4,198.05; and the Nasdaq Composite (.IXIC) added 188.27 points, or 1.51%, at 12,688.84.

Walmart (WMT.N) shares gained 1.30% to $151.47 after the retail giant reported better-than-expected first-quarter earnings and boosted its 2023 sales and profit outlook.  The debt ceiling has drawn attention away from uncertainty about the Federal Reserve's stance on interest rates.

Economic data showed the number of Americans filing new claims for jobless benefits fell more than expected last week, suggesting the labor market remains tight, giving the Fed more cushion to continue raising rates.

    Jobless claims

Recent data has indicated some slowing in the U.S. economy following a string of Fed rate hikes to fight high inflation. But while the market is pricing in a rate cut by the end of the year, comments from Fed officials suggested they are not yet ready to cut or even pause hiking rates soon.  Dallas Federal Reserve Bank President Lorie Logan and Fed Governor Philip Jefferson said on Thursday the economy does not appear to be softening fast enough for the central bank to pause its rate hike cycle.  "If we get a debt ceiling agreement at the end of the week here and remove that macro issue, you still have the Fed meeting in June, now that is probably a live meeting based on what some of the policymakers have been saying this week, so that could be a concern, it could kind of cap some of the momentum in the market," said Saglimbene.

Despite another rise in the 10-year U.S. Treasury yield, growth stocks (.IGX) advanced 1.03%, led by a 8.65% jump in Synopsys (SNPS.O) shares after its second-quarter earnings results and forecast.  Netflix Inc (NFLX.O) surged 9.22% after saying its recently launched ad-supported tier reached nearly 5 million active users per month.  Chipmaker Micron Technology Inc's (MU.O) shares gained 4.08% as it plans to invest up to 500 billion yen ($3.70 billion) in Japan for new chips over the next few years.  Take-Two Interactive Software Inc (TTWO.O) jumped 11.69% as it beat estimates for quarterly adjusted sales.

Volume on U.S. exchanges was 10.49 billion shares, compared with the 10.62 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered decliners on the NYSE by a 1.31-to-1 ratio; on Nasdaq, a 1.14-to-1 ratio favored advancers.  The S&P 500 posted 27 new 52-week highs and seven new lows; the Nasdaq Composite recorded 88 new highs and 83 new lows.