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Main U.S. indexes end mixed: Nasdaq, S&P 500 rise, DJI
slips
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Comm svcs leads S&P 500 sector gainers; energy weakest
group
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Dollar, gold slip, crude off >1%; bitcoin up slightly
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U.S. 10-Year Treasury yield slides to ~3.44%
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A MIXED BAG OF CATS (1602 EDT/2002 GMT) Wall Street ended Wednesday's session as a mixed bag of cats, some peppy like they ate your AI-generated homework and some an angry red. The Nasdaq gained around 1% and boasted its highest close since August 2022, while the S&P 500 advanced more tentatively, and the Dow edged down. In-line inflation and Google's artificial intelligence plans provided support, while falling oil prices detracted as did the latest bank sector exodus.
Communication services was boosted by a 4.1% gain in Google parent Alphabet's shares as the company rolled out more artificial intelligence for its core search product, hoping to create some of the same consumer excitement generated by Microsoft Corp's rival plans in recent months. Still, Microsoft edged Alphabet in terms of the boosts they provided to the S&P 500 on the day. And while the roughly as expected inflation numbers had some investors betting that the Fed could feel comfortable pausing rate hikes others worried that still-high inflation would keep rates higher for longer.
This idea put a damper on bank stocks as the Fed's relentless interest rate hikes to rein in inflation have been blamed in part for sparking the biggest meltdown in the banking sector since the 2008 financial crisis. Regional bank stocks underperformed with the KBW regional banking index ending down around 0.8%, while the S&P 500 banks index lost around 0.7%.
Here is snapshot of where markets stood just shortly after the close:
(Sinéad Carew)
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SIGNS THE CONSUMER MAY BE TAPPING OUT (1333 EDT/1733 GMT) Consumer behavior accounts for the bulk of the U.S. economy, so Bank of America took note when it saw a decline in credit card spending for April and pointed to the data as a sign that spending by individuals is softening.
It said that Bank of America's total card spending per household dropped to 1.2% from April 2022, which was the first year-over-year (YoY) decline since February 2021. On a seasonally-adjusted basis however, spending rose +0.3% in April month-over-month (MoM). While it noted that the aggregate labor market picture remains solid, it said that its card data suggests "some deterioration at the higher end of the income distribution." Behind this it pointed to unemployment rising fastest amongst higher-income households, with the weakest pay growth at the high end. And it notes that higher-income spending growth on discretionary items had fallen below lower- and middle-income households spending growth.
Still, it notes that "savings buffers remain elevated" with internal data showing median household savings and checking balances still over 40% higher than 2019's average across all income groups. Here is a Bank of America graphic showing where spending dipped most in April using their internal data:
Incidentally, also on Wednesday, Airbnb's shares slid 12% after the top vacation rental firm issued a gloomy second-quarter forecast, signaling that high travel costs may be finally catching up to budget-conscious U.S. consumers.
(Sinéad Carew)
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STILL TIME TO TURN THE KEY ON THE DEBT CEILING DEADLOCK
(1234 EDT/1634 GMT)
The cost of insuring exposure to U.S. government debt rose
to fresh highs on Wednesday, as President Joe Biden and top
lawmakers remained deadlocked in talks over raising the $31.4
trillion U.S. borrowing limit.
Despite the angst, Ryan Detrick, chief market strategist at
The Carson Group, notes that a debt ceiling increase has been a
very common event.
"The first time it was used was in 1917 to help finance
World War I and has happened more than 100 times since. In fact,
every President back to Eisenhower has increased the debt
ceiling, for a total of 89 times since 1959. President Biden has
increased it twice already, which is the least number of times
any President has increased it going back 11 Presidents," writes
Detrick in a note.
In terms of options, Detrick says that they could do nothing
and potentially let the U.S. default, while they could also
raise the $31.4 trillion debt ceiling. Another option he offers
is for Congress to suspend the debt ceiling, which is something
he says they have done seven times since 2013, including as
recently as August 2019 to July 2021.
In any event, the Carson Investment Research team’s base
case remains that while there’s a big disconnect between the two
sides right now, the opportunity is there for some deal-making
with a final agreement before the clock strikes midnight, even
with some final posturing.
Detrick's bottom line is that "Ultimately, it’s in neither
President Biden’s or Speaker McCarthy’s interest to see a
default, and potential economic catastrophe, under their watch."
Here is a chart of the cost of insuring U.S. debt against
default for five years. It stands at 73 basis points, up from 72
bps on Tuesday, touching the highest level since 2009:
(Terence Gabriel)
*****
COOL YOUR JETS: CPI, MORTGAGE RATES (1133 EDT/1533 GMT) By any chance, are you aware we had some inflation data early Wednesday? We did, and the Labor Department had the good taste to deliver an on-the-money Consumer Price Index (CPI) report , showing - as if we didn't know already - that inflation is trudging down cool-down mountain, albeit at a glacial pace.
The overall index, which measures the prices urban consumers pay for a basket of goods and services, actually landed a rounding error - 0.06% - below analyst expectations. Month-to-month and year-on-year, the headline number arrived at 0.4% and 4.9%, respectively, the latter just a hair below the 5% consensus. The core reading, which strips out volatile food and energy prices, stuck the landing with monthly and annual readings of 0.4% and 5.5%. Digging deeper, gasoline and autos were hot spots, showing respective monthly jumps of 3.0% and 1.2%. Food prices were unchanged, services notched a cool 0.2% gain and airfares posted a welcome monthly 2.6% decline. All told, the report seems to give the Fed a rationale to press the rate-hike 'pause' button at next month's policy meeting. "(The Fed is) likely to indicate that they reserve the right to raise rates again in the future, but typically once the Fed pauses they are unlikely to begin raising rates again, so we are going to be in a holding pattern," writes Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
"The most likely scenario is that the Fed remains on hold, the economy continues to move along as it has the entire time the Fed has been raising rates," Zaccarelli adds. "But it will begin to slow this year and a recession is still likely – it is more a matter of when and not if." CPI is the second April inflation number, following last Friday's hotter-than-expected hourly wage growth figure. The graphic below shows the major indicators and how far they still have to fall before approaching the Fed's magic 2% annual target: Also, in case you missed it, demand for home loans jumped by 6.3% last week as mortgage rates ebbed a bit, according to the Mortgage Bankers' Association (MBA). The average 30-year fixed contract rate shaved a miniscule 2 basis points off the top to 6.48%, prompting a 4.8% increase in applications for loans to purchase homes , and a 10.0% surge on the refi side .
"Mortgage applications responded positively to a drop in rates last week, as the Fed signaled a potential pause at the current level for the federal funds rate in anticipation of inflation slowing and tightening financial conditions that will slow economic and job growth," says Joel Kan, MBA's deputy chief economist.
Be that as it may, overall mortgage demand remains 36.5%
below the year-ago level:
(Stephen Culp)
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NASDAQ LEADS RALLY WITH FED PAUSE BETS (1013 EDT/1413 GMT) Wall Street's major indexes are mixed early on Wednesday as investors breathed a sigh of relief after April's inflation data came in mostly as expected.
While it has since pared gains, the tech-heavy Nasdaq hit its highest intraday level since August 2022 after the news. It likely helped rate-sensitive technology stocks as traders strengthened bets the Federal Reserve would end its interest-rate hike campaign after the inflation data appeared to show signs of progress in the Fed's fight against soaring prices. Most of the 11 major S&P 500 industry sectors are advancing with tech and consumer discretionary jostling each other for the top gainer prize. Energy is weakest group as oil prices are falling. Shares in Google parent Alphabet Inc are boosting the communication services index as the Web search company is expected to unveil more artificial intelligence in its products in answer to the latest competition from Microsoft Corp , which has threatened its perch atop the nearly $300-billion search advertising market. Microsoft is advancing on Wednesday, but at a slower pace than Alphabet.
Meanwhile, the U.S. government standoff over the debt ceiling is having a less positive impact with the cost of insuring exposure to U.S. government debt rising after talks between President Joe Biden and top lawmakers did not break a deadlock over raising the $31.4 trillion U.S. borrowing limit. Here is your morning snapshot from 1010 EDT:
(Sinéad Carew)
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U.S. STOCK FUTURES CHEER ROUGHLY IN-LINE CPI (0900 EDT/1300 GMT) U.S. equity index futures have strengthened in the wake of the release of the latest data on U.S. inflation. The April CPI, on a month-over-month basis, was in-line with the estimate, while the year-over-year number came in below the Reuters Poll. The month-over-month and year-over-year core readings were in-line with estimates:
According to the CME's FedWatch Tool, the probability that the FOMC will leave rates unchanged at their June 13-14 meeting is now 85% from 80% just before the numbers were released. There is now around a 15% chance of a 25 basis point increase vs 20% prior to the data coming out. CME e-mini S&P 500 futures are rallying around 0.8%. The futures were just below flat in the moments before the numbers came out.
All S&P 500 sector SPDR ETFs are quoted higher in premarket trade with consumer discretionary and communication services posting the biggest gains. XLY and XLC are up around 1% each. Regarding the inflation data, Kenny Polcari, chief market strategist at Slatestone Wealth, said: “I don’t necessarily think it’s a blazing bullish report but it’s going to give some people the option to argue for a pause and a pivot from the Fed, which I don’t think is the case. I think the Fed will raise rates again in June and then pause. I don’t see a pivot in all of 2023.” Polcari added "Futures were up because it wasn’t a stronger number. Futures went from being nervous to now being bullish that the Fed is making progress and is not going to raise rates any more."
Here is a premarket snapshot from shortly before 0900 EDT:
(Terence Gabriel, Sinéad Carew)
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FOR WEDNESDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
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LMCPI05102023 premarket05102023 Wall Street indexes rise with Nasdaq leading Inflation MBA US5YrCDS05102023 Bank of America declines in consumer spending by category closer05102023 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
