The three major indices of the U.S. New York stock market showed slight gains in early trading on the 18th (local time) as optimism over an agreement to raise the debt ceiling continued. Walmart’s earnings, which exceeded expectations for the first quarter and included an upward revision of its annual guidance, also supported a recovery in investor sentiment. However, the gains were limited by hawkish remarks from Federal Reserve (Fed) officials, indicating that recent economic data do not support a rate hold in June.
At around 10:37 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was up 51 points (0.15%) to 33,472 compared to the previous close. The large-cap S&P 500 index rose 20 points (0.5%) to 4,179, while the tech-heavy Nasdaq index gained 103 points (0.83%) to 12,603.
Currently, within the S&P 500, stocks related to technology, consumer discretionary, communication, industrials, and financials are rising. In contrast, utilities, real estate, consumer staples, and energy sectors are weak. Walmart, which released earnings before the market opened, is trading nearly 2% higher on the back of better-than-expected results. Walmart also raised its annual guidance. Video game company Take-Two Interactive Software surged more than 12% on strong earnings. Micron is up about 5% following news of its semiconductor plant investment in Hiroshima, Japan. Intel rose 1.94%, Nvidia 3.14%, and other semiconductor peers also showed gains. Regional banks, including PacWest Bancorp (+10.6%), continued their rally.
Investors are closely watching the debt ceiling discussions, Fed officials’ remarks, economic data, and corporate earnings to gauge the future economic outlook and monetary policy direction. Art Hogan, Chief Market Strategist at B. Riley Wealth Management, said, “One comment that shook the market a bit this morning was from Lori Logan, President of the Federal Reserve Bank of Dallas.”
President Logan drew a line, stating that recent economic data do not support a rate hold at the June FOMC meeting. She said, “We have made some progress by raising rates in the last 10 FOMC meetings,” adding, “In the coming weeks, data may show that skipping a rate hike (holding steady) is appropriate, but at this point, it is not yet time.” On the same day, Fed Governor Philip Jefferson also emphasized the continuation of tightening, saying, “Inflation remains too high.”
According to the CME FedWatch tool, as of this morning, the federal funds futures market is pricing in about a 67% chance that the Fed will hold rates steady in June. The probability of an additional baby step hike has risen to the low 30% range, up from 28% the previous day and from the 10% range a week ago. Since March last year, the Fed has raised rates 10 consecutive times, pushing the U.S. benchmark rate to 5.0-5.25%. The next FOMC meeting where the rate decision will be made is scheduled for June 13-14.
The weekly initial jobless claims in the U.S. released today decreased. According to the U.S. Department of Labor, last week’s claims fell by 22,000 to 242,000, below Wall Street’s forecast of 255,000. Continuing claims, which represent those filing for unemployment benefits for at least two weeks, decreased by 8,000 to 1.8 million. This suggests that despite the Fed’s aggressive tightening, unemployment has not risen as much as expected, indicating a still-robust labor market. Local media also analyzed that the recent large-scale fraud allegations in Massachusetts and subsequent crackdowns by state authorities partially influenced these results.
However, the Conference Board’s Leading Economic Index for April fell by 0.6%, signaling a potential deterioration in the U.S. economic outlook. This figure aligns with Dow Jones estimates. CNBC emphasized that while the number met expectations, it points to slowing growth and the possibility of a future recession. The Conference Board expects economic activity to contract starting in the second quarter, leading to a mild recession.
Investors are also closely monitoring ongoing debt ceiling talks between the White House and Republicans. On this day, Republican House Speaker Kevin McCarthy raised hopes for a deal by stating that a vote on the agreement could take place as early as next week. Following McCarthy’s remarks, which were reported in the morning, the New York stock market, which had been weak due to Fed tightening concerns, turned sharply higher. Speaker McCarthy said, “I see a path to an agreement,” adding, “There is a structure, and everyone is working hard.” He had also told CNBC the previous day, “I don’t think there will be a default.” However, caution remains as the so-called X-day, when cash runs out, approaches on July 1, and the final passage of the bill still needs to be observed.
In the New York bond market, Treasury yields rose following Fed officials’ remarks and tightening expectations. The 10-year U.S. Treasury yield climbed to around 3.64%. The 2-year Treasury yield, which is sensitive to monetary policy, rose to about 4.22%. The dollar index, which measures the dollar’s value against six major currencies, increased 0.6% to 103.4 compared to the previous close.
European stock markets also rose. Germany’s DAX index gained 1.16%. The UK’s FTSE index rose 0.22%, and France’s CAC index increased 0.57%.
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