Optimism About Debt Ceiling Deal Contributes To Extended Rally On Wall Street

Following the rally seen during Wednesday’s session, stocks showed another strong move to the upside during trading on Thursday. With the continued advance, the Nasdaq and the S&P 500 reached their best closing levels in about nine months.

The major averages reached new highs for the session going into the close of trading. The Nasdaq surged 188.27 points or 1.5 percent to 12,688.83, the S&P 500 jumped 39.28 points or 0.9 percent to 4,198.05 and the Dow rose 115.14 points or 0.3 percent to 33,535.91.

Optimism lawmakers will eventually reach an agreement on raising the U.S. debt ceiling contributed to the continued strength on Wall Street.

Following a meeting earlier in the week, President Joe Biden and House Speaker Kevin McCarthy, R-Calif., both expressed optimism a deal will be reached.

“Stocks are rising as the biggest risk on Wall Street’s table appears to be going away,” said Edward Moya, senior market analyst at OANDA. “Speaker McCarthy said that the House could vote on the debt ceiling deal as soon as next week.”

“Traders are so fixated on the debt ceiling and regional banking fears that they are losing track of what could happen with inflation,” he added. “Stocks are heading higher, but could soften if we continue to get more rounds of data that suggest the economy is not breaking.”

A positive reaction to quarterly results from Walmart (WMT) also generated some buying interest, with the retail giant climbing by 1.3 percent.

The advance by Walmart came after the company reported better than expected first quarter results and raised its full-year guidance.

On the U.S. economic front, the Labor Department released a report showing first-time claims for U.S. unemployment benefits fell by more than expected in the week ended May 13th.

The report said initial jobless claims slid to 242,000, a decrease of 22,000 from the previous week’s unrevised level of 264,000. Economists had expected jobless claims to dip to 254,000.

The bigger than expected drop came after jobless claims reached their highest level since the week ended October 30, 2021 in the previous week.

A separate report released by the Federal Reserve Bank of Philadelphia showed a continued contraction in regional manufacturing in the month of May, although the pace of contraction slowed by more than expected.

The Philly Fed said its diffusion index for current activity surged to a negative 10.4 in May from a negative 31.3 in April.

While a negative reading still indicates a contraction in regional manufacturing activity, economists had expected the index to show a more modest recovery to a negative 19.8.

The bigger than expected rebound came after the Philly Fed Index dropped to its lowest level since May 2020 in the previous month.

The National Association of Realtors also released a report unexpectedly showing a steep drop in U.S. existing home sales in the month of April.

NAR said existing home sales plunged by 3.4 percent to an annual rate of 4.28 million in April after tumbling by 2.6 percent to a revised rate of 4.43 million in March.

The extended pullback surprised economists, who had expected existing home sales to inch up by 0.1 percent compared to the 2.4 percent slump originally reported for the previous month.

Sector News

Semiconductor stocks moved sharply higher on the day, with the Philadelphia Semiconductor Index spiking by 3.2 percent to its best closing level in well over a month.

Micron Technology (MU) posted a standout gain after announcing plans to invest up to $3.6 billion to bring extreme ultraviolet (EUV) technology to Japan for production.

Computer hardware, networking, and software stocks also saw significant strength, contributing to the surged by the tech-heavy Nasdaq.

Retail stocks have also moved notably higher following Walmart’s upbeat results, driving the Dow Jones U.S. Retail Index up by 1.7 percent.

On the other hand, gold stocks saw substantial weakness on the day, dragging the NYSE Arca Gold Bugs Index down by 2.5 percent.

The sell-off by gold stocks came amid a steep drop by the price of the precious metal, with gold for June delivery tumbling $25.10 to $1,959.80 an ounce.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan’s Nikkei 225 Index shot up by 1.6 percent, while China’s Shanghai Composite Index increased by 0.4 percent.

The major European markets also moved to the upside on the day. While the German DAX Index jumped by 1.3 percent, the French CAC 40 Index climbed by 0.6 percent and the U.K.’s FTSE 100 Index rose by 0.3 percent.

In the bond market, treasuries moved lower for the fifth consecutive session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 6.7 basis points to a two-month closing high of 3.648 percent.

Looking Ahead

Remarks by Federal Reserve Chair Jerome Powell are likely to be in focus on Friday along with any news regarding the debt ceiling negotiations.

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