Market Pulse

In focus

The U.S. debt ceiling debate has come increasingly into focus as the “X-date” draws near. Equities rallied on Wednesday following comments from President Biden and Speaker McCarthy that fueled optimism that a deal will be reached. These hopes helped push the S&P 500 to its two highest closes of 2023 on Thursday and Friday.

Appearances from several Federal Reserve (Fed) officials were other key themes, and comments were generally perceived as hawkish early in the week. By midweek, markets priced in a roughly 40% chance of a 0.25% rate hike at the June FOMC meeting. However, the implied probability of another hike dropped below 20% to end the week following comments from Fed Chair Powell on Friday, which were viewed as somewhat less hawkish.

With uncertainty around the debt ceiling, monetary policy, and health of the economy, bullish sentiment is unusually low. According to the AAII Investor Sentiment Survey last week, expectations that stocks will gain over the next six months fell to a seven-week low and are below the historical average for the fourteenth-straight week. Despite this bearish sentiment, mega cap tech stocks had another strong week to help boost the major indices. Excitement around artificial intelligence has been a catalyst for these tech giants, which have accounted for a large proportion of equity markets’ returns in 2023.

A look back

• Global equities ended the week up over 1.0% as U.S. stocks led the way. International developed and emerging markets lagged though still posted gains.
• Treasury yields jumped up across the curve. The 3-month/10-year inversion eased but remains historically deep at -1.57%.
• Retail sales rose in April to snap a two-month skid. Meanwhile, existing home sales continued to drop last month, as housing prices increased amid limited supply.

A look ahead

• Investors will watch for any signs of progress in the debt ceiling debate, while April personal consumption expenditures (PCE) will provide another inflation datapoint.
• On Wednesday, Fed Governor Waller will give a speech on the economic outlook, and the minutes of May’s FOMC meeting will be released.
• Economic releases: S&P Global U.S. Manufacturing & Services, New Home Sales, PCE, Revised GDP, Durable Goods Orders.

To read the publication in its entirety, please click the button below "Download PDF".