[New York Stock Market] Rising Ahead of Tomorrow's US Debt Negotiations... Nasdaq Up 0.66%

The three major indices of the U.S. New York stock market closed slightly higher on Monday, the 15th (local time), as investors monitored progress in debt ceiling negotiations. Amid warnings that a default could occur as early as early June, President Joe Biden and congressional leaders are scheduled to hold a second meeting on the debt ceiling the following day.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 33,348.60, up 47.98 points (0.14%) from the previous session. The S&P 500, which focuses on large-cap stocks, rose 12.20 points (0.30%) to 4,136.28, while the tech-heavy Nasdaq index closed at 12,365.21, up 80.47 points (0.66%).

Within the S&P 500, stocks related to financials, materials, industrials, technology, energy, and consumer discretionary sectors rose. In contrast, utility stocks fell more than 1%. PacWest Bancorp, whose stock plunged after last week's deposit decline announcement, surged 17.58% from the previous session. Charles Schwab rose more than 4% after investment bank Raymond James upgraded its rating. Energy midstream service provider ONEOK fell more than 9% after announcing it would acquire rival Magellan Midstream Partners for $14 billion. Magellan surged nearly 13%. Additionally, Microsoft (MS) closed slightly higher after receiving approval from the European Union (EU) Commission for its acquisition of Activision Blizzard.

[Image source=Reuters Yonhap News]

Investors focused on whether there would be progress in debt ceiling negotiations ahead of the meeting between President Biden and House Speaker Kevin McCarthy scheduled for the next day, as well as key economic indicators and remarks from Federal Reserve (Fed) officials. John Stoltzfus, chief investment strategist at Oppenheimer, said, "Amid growing market concerns, it is hopeful that efforts to resolve the debt ceiling issue appear to have intensified over the past few days."

However, concerns remain that significant obstacles are inevitable before a final agreement, given the tense standoff between the White House and the Republicans. McCarthy, a Republican, told NBC on the same day, "I still think we are far apart," adding, "From my perspective, they want to appear as if they are negotiating, but they are not seriously discussing anything." He also said, "It seems they want a default rather than a negotiation."

The U.S. exhausted its $31.4 trillion debt ceiling in January and has since used extraordinary measures to buy time for negotiations, but those measures are now nearing their limits. With the Senate scheduled to recess for Memorial Day from May 22 to 29, the deadline is becoming more urgent. Considering the time needed to pass legislation, McCarthy predicted that negotiations must be concluded by this week. The X-day, when cash runs out, warned by Treasury Secretary Janet Yellen, is June 1. Market observers also expect that the closer the default approaches, the more inevitable the stock market plunge and other repercussions will be.

The manufacturing activity indicator for the New York region showed a sharp decline. The May Empire State Index fell 42.6 points from the previous month to -31.8, significantly below Dow Jones estimates. A negative reading indicates contraction in manufacturing activity.

This week, a series of indicators confirming consumer conditions, which support two-thirds of the U.S. economy, and retail earnings will be released. April retail sales data will be published the next day, with Wall Street currently expecting a 0.7% increase from the previous month. April industrial production, also released the same day, is expected to show a slight slowdown. Besides the U.S., China is also set to release retail sales and industrial production data. Earnings reports from Home Depot, Walmart, and Target are also scheduled.

Speeches by Fed officials, including Fed Chair Jerome Powell, are also expected to continue. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, dampened hopes for a pivot by stating his baseline scenario does not include rate cuts before 2024. Austan Goolsbee, president of the Federal Reserve Bank of Chicago, mentioned that he barely voted for the rate hike in May due to concerns about bank stress and showed caution regarding future policy paths.

According to the CME FedWatch tool, as of that morning, federal funds futures markets reflected more than a 75% chance that the Fed will hold rates steady in June. The probability of an additional "baby step" rate hike rose to 24.7%, up from the mid-teens the previous day. The Fed, which declared war on inflation, has raised rates ten consecutive times since March last year, bringing the U.S. benchmark rate to 5.0-5.25%.

Brad Bernstein, managing director at UBS Wealth Management, said, "In the short term, the stock market will remain stagnant until the debt ceiling agreement and clarity in the banking sector are achieved," adding, "The market is worried about the debt ceiling issue while simultaneously hoping the Fed will pause rate hikes in June."

In the New York bond market, the 10-year U.S. Treasury yield rose to around 3.5%. The 2-year Treasury yield, sensitive to monetary policy, remained near 4%, similar to the previous day. The dollar index, which measures the dollar's value against six major currencies, fell about 0.2% to 102.4 compared to the previous session.

International oil prices rebounded after four trading days. On the New York Mercantile Exchange, June delivery West Texas Intermediate (WTI) crude oil closed at $71.11 per barrel, up $1.07 (1.53%) from the previous session.