The futures market is well in the green this morning as the Street sees some positives from the debt ceiling negotiations. The White House announced that President Biden will cut short an international trip to devote more time to the talks. House Speaker Kevin McCarthy said that a "better process" was in place and that it was "possible to get a deal by the end of the week." He stated, "I think at the end of the day, we do not have a debt default." In addition, a few earnings reports were released, most notably including retailer Target Corp. (TGT), which beat expectations in the recent quarter, though it did warn about a cautious consumer. Additionally, the Census Bureau reported that 1.401 million housing starts occurred in April, rising 2.2% from the level in March. Overall, the market appears to be on track for a strong start to the trading day.
The stock market traded lower yesterday as fears of a recession, the lack of a debt ceiling deal, and lackluster earnings news hit the tape. Notably, Dow-30 Component Home Depot (HD) reported that wetter winter weather and lower lumber prices affected its sales and gave a weaker-than-expected outlook. This sent the major indices lower through the day, and the averages finished not far from their lows. Overall, the S&P 500 fell 26 points (down 0.64%), the NASDAQ was off 22 points (down 0.18%), and the Dow Jones Industrial Average declined 336 points (off 1.01%). Market breadth was heavily negative, with decliners outpacing advancers by a 3.9-to-1.0 ratio. Technology stocks were among the best performers on the day, while REITs were amongst the weakest.
In commodity news, crude oil prices continued to fall yesterday, as fears about a global economic slowdown have caused worries about oversupply. Elsewhere, U.S. Treasury bond yields were mixed, with short-term rates rising and long-term ones falling. The yield curve remains heavily inverted, with short-term rates trading well above long-term ones, which usually portends a coming recession. The Chicago Board Options Exchange Volatility Index (VIX), more broadly known as the fear index, rose yesterday as traders bought more options protection.
Several economic reports will be released in the days ahead. These include the Philadelphia Fed Factory survey for May, initial jobless claims, existing home sales, and leading economic indicators on Thursday. Additionally, several regional Fed Presidents will give remarks on the economy in the days ahead. Elsewhere, there will be a relative handful of earnings reports, though we are well past the apex of earnings season. Dow-30 components Cisco Systems (CSCO) and Walmart Inc. (WMT) will report after the close today and before the market opens tomorrow, respectively. Overall, we think most eyes will be on any developments concerning the debt ceiling and any surprises in earnings data.
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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