Nasdaq 100 set to extend 2023 rally?

US equities are poised to continue the past 2-month rally after today’s Memorial day holiday, with the Nasdaq 100 likely to benefit most. Of major markets open today, the Nikkei 225 was up over 1% (clocking a 20% rise for the year.) US stock futures rose modestly. The VIX, Wall Street’s fear index, fell to 17 this morning, on debt ceiling news.

Debt deal could slow growth, moderate rate rises

President Biden and House Speaker McCarthy struck a debt ceiling deal in principle on the weekend, but still need to sell it to their caucuses in the House and Senate by the extended June 5 deadline. Spending limits are expected to be applied starting with the fiscal year start of October, though it’s possible small effects could emerge before through clawbacks of Covid assistance and phasing out student debt assistance. Most impactful for the broader economy is the cap on government spending potentially limits a US economy burdened by the high interest rates and restricted credit access. Federal and State spending has helped support US growth so far, but this assistance could fade.

Economists recently surveyed by Bloomberg signaled in a 0.5% annualized drop in gross domestic product for both the third and fourth quarters, and this group put the chances of a recession in 2024 at 65%. On the flip side, a slowing economy – still not evident in recent economic data – could persuade the Fed to make no change in interest rates at  their mid-June policy meeting. Fed Futures now indicate a final 25 basis-point hike in July.

Tech stock rally

We are seeing some very sharp price movements amongst tech stocks which could be a theme for the week ahead. Nvidia’s extraordinary rally was the standout last week, with the tech conglomerate’s price rising 26% on Thursday after reporting better than expected quarterly results. This year has seen a tremendous appetite to buy tech stocks, after a one third decline in the Nasdaq 100 in 2022. In May alone, eight tech stocks are up 30%-plus:  NVIDIA (89.9%), Salesforce (49.6%), Advanced Micro Devices (38.0%), Arista Networks (32.0%), Monolithic Power Systems (30.6%), Apple (30.6%), Cadence Design Systems (30.4%) and ANSYS (30.0%).

Bottom line – risk-on?

Financial markets could move to risk-on this week if the debt ceiling deal is approved, with tech stocks likely to benefit most.

TODAY’S MAJOR MARKETS

Equity markets

• US stock futures rose 0.5% in Monday morning trading in Asia but subsequently fell back to be up 0.2% at time of writing
• In Tokyo, the Nikkei 225 rose 1% in Monday trading.
• The DAX was unchanged
• The VIX, Wall Street’s fear index, fell 3% to 17.4

Currencies and Bonds

• The dollar index was unchanged against a basket of currencies this morning, after advancing 1% last week
• Yields on 10-year Treasury futures ticked lower, sending the implied yield up slightly to 4.46%

Commodities

• Gold prices were unchanged this morning at $1,963 per ounce
• Crude oil prices were off 0.3% to $72.5 per barrel

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com