Renewed Optimism About Debt Ceiling Deal Leads To Extended Rally On Wall Street

Stocks moved sharply higher over the course of the trading day on Friday, extending the rebound seen during Thursday’s session. With the continued upward move, the Nasdaq and the S&P 500 reached their best closing levels in nine months.

The major averages moved roughly sideways going into the close, holding on to strong gains. The Nasdaq spiked 277.59 points or 2.2 percent to 12,975.69, the S&P 500 surged 54.17 points or 1.3 percent to 4,205.45 and the Dow jumped 328.69 points or 1.0 percent to 33,093.34.

The jump by the Dow came after the blue chip index bucked Thursday’s uptrend and edged down to its lowest closing level in almost two months.

The major averages turned in a mixed performance for the week. While the Dow slumped by 1.0 percent, the S&P 500 rose by 0.3 percent and the tech-heavy Nasdaq soared by 2.5 percent.

Stocks benefitted from renewed optimism about raising the U.S. debt ceiling amid reports lawmakers are closing in on an agreement.

Recent reports suggest lawmakers are inching closer to an agreement that would raise the debt limit for about two years and cap federal spending at the same level as fiscal 2023 for two years.

A report from CNBC said the deal would also include rescinding some of the $80 billion allocated for the IRS by last year’s Inflation Reduction Act.

House Speaker Kevin McCarthy, R-Calif., told reporters negotiators made progress during a meeting Thursday night and expressed optimism they would make “more progress today and finish the job.”

However, clear sticking points remain in the ongoing talks, including implementing work requirements for social assistance programs like food stamps.

Optimism about a debt ceiling deal overshadowed a Commerce Department report showing a reacceleration in the annual rate of consumer growth in the month of April.

The report said the annual rate of consumer price growth accelerated to 4.4 percent in April after slowing to 4.2 percent in March. Economists had expected the pace of growth to slow to 3.9 percent.

The annual rate of growth by core consumer prices, which exclude food and energy prices, also accelerated to 4.7 percent in April after slowing to 4.6 percent in March. Economist had expected the pace of growth to be unchanged.

On a monthly basis, consumer prices rose by 0.4 percent in April after inching up by 0.1 percent in March, while core consumer prices also increased by 0.4 percent in April after rising by 0.3 percent in March.

“Once a debt deal is done, markets will have to deal with the harsh reality that the Fed is going to kill this economy,” said Edward Moya, senior market analyst at OANDA. “The end of tightening might not occur until the end of summer and that means we will probably get bigger rate cuts next year.”

Sector News

Technology stocks once again led the rally on Wall Street, with semiconductor stocks showing another substantial move to the upside.

Reflecting the strength in the sector, the Philadelphia Semiconductor Index spiked 6.3 percent to its best closing level in well over a year.

Marvell Technology (MRVL) led the sector higher after the chipmaker reported better than expected fiscal first quarter results and said it expects revenue growth to accelerate in the second half.

Networking, computer hardware and software stocks also saw significant strength on the day, contributing to the surge by the Nasdaq.

Outside the tech sector, retail and airline stocks showed strong moves to the upside, driving the Dow Jones U.S. Retail Index and the NYSE Arca Airline Index up by 2.5 percent and 2.1 percent, respectively.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Friday. Japan’s Nikkei 225 Index and China’s Shanghai Composite Index both rose by 0.4 percent, while South Korea’s Kospi inched up by 0.2 percent.

The major European markets also moved to the upside on the day. While the U.K.’s FTSE 100 Index advanced by 0.7 percent, the German DAX Index and the French CAC 40 Index both jumped by 1.2 percent.

In the bond market, treasuries saw considerable volatility before ending the session roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 3.810 percent.

Looking Ahead

Any Memorial Day weekend developments on the debt ceiling front may impact trading early next week, while the Labor Department’s monthly jobs report is likely to attract attention later in the week.

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