US 500

Smaller and more cyclical stocks in the Russell 2000 index led a buoyant stock market following passage of the debt ceiling bill, sending the measure to President Biden for his signature. Much stronger than expected payroll numbers failed to dampen enthusiasm. Small cap stocks led the rally, taking up leadership from tech stocks. Gold fell back and oil rallied.

Stocks remained under pressure today ahead of an expected House of Representatives vote on the debt ceiling deal this evening that would then send the bill to the Senate. Any hint of a slip in approving the deal would spook financial markets. Domestic jobs market data was surprisingly strong, suggesting the next move in interest rates will be up. There was more disappointing economic data out of China, hitting the energy, metals and agricultural commodity markets.

The short-term S&P 500 analysis appeared bearish but confirmation was needed to tip the balance in the bears’ favour.

Aside from a continuing surge in AI stocks boosting the Nadaq 100, stocks were generally mixed this morning as work on the Hill turned to turning the debt ceiling deal into a final agreement in both houses on Congress. Don’t crack the champagne just yet – the deal isn’t sealed yet. Crude oil prices were down by more than 4% on the growth outlook if the US defaults, and skepticism about further supply cuts this week's OPEC+ meeting.

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.

The commitment of traders (COT) report shows how large speculators are positioned across futures markets on the CME exchange.

Nasdaq 100 lead equity markets higher even as bond markets dipped. Markets reacted positively to the belief that a deal on the debt ceiling is close (surprise surprise), but better than expected economic data led to higher expectations for rates (something not expected a few months ago.) The US dollar held on to recent gains, gold was unchanged, and oil bounced back after recent profit taking.

The macro, micro and technical outlook for base metals has been pretty bearish, and it is not surprising that the base metals price index has fallen to six months lows. Market sentiment towards the outlook for a rebound in economic growth within China weakened this year with the release of disappointing economic data.

Wall Street continues to reflect confusion amid contentment, with the tech sector leading, even as debt ceiling talks in Washington remain uncertain. The Nasdaq 100 hit a 12-month high. On the other hand, traders are finally starting to believe that the Federal Reserve may not be finished with rate hikes – and with good reason after comments from Fed governor James Bullard. This week is light on economic data.

We believe that the S&P 500 will experience a correction of at least 10% in the next six months for the following reasons, discussed in this article by our global strategist Vincent Deluard. In a hotter-for-longer economy, rates should stay high for longer, which would be bearish for stocks. The only justification for the fact that S&P 500 index trades for a near-record 20 times forward earnings is that rates will soon fall to zero again. If rate cuts do not come in the second half, we expect multiples to fall to 15 – bring on a more sizable correction.

The Dow Jones and NASDAQ 100 slipped by midday as earlier optimism on a Debt Ceiling agreement was offset by the fear that interest rates might rise again after a later speech by Fed Reserve Chair Jerome Powell. Fed fund futures moved to a more bearish position, now pricing in near equal odds of another rate hike at the June meeting earlier this week, and odds of another rate hike falling to just 18%.

The NASDAQ 100 and Dow Jones moved higher this morning as optimism grew that a Debt Ceiling agreement will be reached, and despite a growing number of people on Wall Street thinking that the Federal Reserve may have more rate hikes in store for the US economy. The VIX, Wall Street’s fear index, fell back to recent lows, reinforcing the calm mood.

The S&P 500 rose on optimism that the White House and House Republicans will reach a deal to avert a debt crisis, after House Speaker Kevin McCarthy said that now the two sides are sitting down for discussions he believes that the US will not default on its debt. Regional bank stocks were leading today’s gains, reflecting easing concerns for that sector, seemingly ending a three-month decline.

Stocks and gold traded weaker for much of the morning on better-than-expected economic data, as traders continue to monitor today's debt ceiling meeting between President Biden and House Speaker McCarthy. Core retail sales were strong in this morning's data, while industrial output came in much stronger than expected, and the housing index exceeded expectations as well. Data from China suggests a slow recovery from its post-COVID lockdown.

Optimism is growing that the White House will reach an agreement with the Republican House. Traders are also monitoring a plethora of Federal Reserve members speaking publicly this week, with one already going on record to suggest more rate hikes are possible. Fed fund futures currently predict an assumed pause in rate hikes going forward, with rate cuts starting in September, with up to three overall cuts in place by the end of the year. Manufacturing data for New York State provided a reminder that recession could be around the corner.

Markets are preparing for US retail sales data and earnings out from Home Depot, Walmart and Target.

Wall Street enjoyed “risk-on” sentiment this morning as regional bank shares stabilized, but stocks turned lower by midday on weaker consumer sentiment data released today, and weak economic data out of China, rekindled recession fears. Gold and the Dollar stood out as the safe haven assets.