U.S. stocks powered higher Wednesday, with the S&P 500 rising to the highest levels in more than two weeks, as investors reacted to optimistic comments on debt ceiling talks from President Joe Biden that offset concerns over the strength of the American consumer.
Speaking to reporters at the White House prior to his departure for the G-7 leaders' summit in Japan, Biden said there was "no alternative" but to come to a deal on raising the $31.4 trillion debt ceiling ahead of the Treasury Department's June 1 deadline.
"To be clear, this negotiation is about the outlines of the budget, not about the whether or not we're going to (pay our debts)," Biden said of his talks with House Speaker Kevin McCarthy. "The leaders (of Congress) have all agreed: We will not default. Every leader has said that."
McCarthy himself said it was "possible to get a deal by the end of the week", a timeframe that still leaves several days before the June 1 deadline that Treasury Secretary Janet Yellen was deemed the U.S. at risk of potential default.
Stocks Testing 2023 Highs
The debt talk progress helped stocks break out of their recent torpor by early afternoon trading, with the Dow Jones Industrial Average rising 406 points, and the S&P 500 adding 50 points, or 1.22%. The tech-focused Nasdaq was up 166 points, with gain tempered by a corresponding rise in Treasury bond yields.
Benchmark 2-year notes were pegged at 4.162% in afternoon trading following yesterday's surge, while 10-year notes held at 3.583% and the U.S. dollar index, which tracks the greenback against a basket of its global peers, jumped 0.27% to 102.838.
Default risks, linked to the ongoing debt ceiling impasse, remain evident in short-term Treasury bills, with one-month paper holding at 5.808%, but yields have eased from their recent highs amid reports of progress in talks between Biden and McCarthy.
Retail stocks were firmly higher, as well, following better-than-expected first quarter earnings from Target, which included both margin expansion and a drawdown in inventories that offset concerns over near-term demand and the costs linked to a surge in commercial theft.
A solid reading for April retail sales, which undershot Street forecasts but nonetheless snapped two consecutive months of decline, has added to optimism that U.S. consumers can continue to power a surprisingly resilient economy into the summer months. The Atlanta Fed's GDPNow forecasting tool, in fact, suggests the economy is growing a 2.9% clip.
Target shares were marked 2.5% higher in afternoon trading at $160.81 each, while Walmart (WMT) shares slipped 0.3% lower ahead of that group's first quarter earnings prior to the start of trading on Thursday.
Tesla (TSLA) shares were also a notable mover, rising 3.8% after Elon Musk said he planned to carry on as CEO of the clean-energy-car maker, adding that the time he will devote to Twitter under its new leadership will be "relatively small" compared to the past six months.
Musk also said Tesla would begin experimenting with advertising over the coming months, a move Wedbush analyst Dan Ives said could be a "major positive" for the stock.
At last check Tesla shares were marked 4% higher in mid-day trading Wednesday to change hands at $173.20, a move that would extend the stock's year-to-date gain to around 40%.
Fed Rate Concern Lingers
Prospects of a Fed rate hike continue to linger, however, amid the retail sales rebound and hawkish comments from various Fed officials on the need to stay vigilant on inflation risks. The CME Group's FedWatch is pricing in a 28.4% chance of a 25 basis point increase in the Fed Funds rate next month in Washington, but still looks to anticipate at least 50 basis points of rate cuts by the end of the year.
Benchmark 2-year notes were pegged at 4.101% in overnight trading following yesterday's surge, while 10-year notes held at 3.524% and the U.S. dollar index, which tracks the greenback against a basket of its global peers, jumped 0.4% to 102.975.
Default risks, linked to the ongoing debt ceiling impasse, remain evident in short-term Treasury bills, with one-month paper holding at 5.808%, but yields have eased from their recent highs amid reports of progress in talks between President Joe Biden and House Speaker Kevin McCarthy
