US Stocks Climb On Growing Optimism Over Debt Ceiling Deal; Regional Banks Rally, Energy And Financials Lead Gains

The US stock market climbed on Wednesday, after a productive meeting between President Joe Biden and other key congressional leaders a day earlier over raising the debt limit, with the president asserting that the U.S. will never default on its debt.

Cyclical sectors such as financials and energy outperformed, the dollar strengthened and Treasury yields rose across all maturities. 

Regional bank stocks traded higher across the board, after Western Alliance Bancorp WAL reported a $2-billion deposit increase during the second quarter.

The SPDR S&P Regional Banking ETF KRE rose 7.3%, posting the best-performing session since the onset of the crisis in March when Silicon Valley Bank and Signature Bank failed. 

Cues From Wednesday's Trading:

The S&P 500 index rose 0.8%, reversing all of Tuesday's losses. The Dow Jones gained over 300 points, or 1%, while the Nasdaq 100 gained 0.6%. The Russell 2000 index of small-cap companies outperformed, rising 1.6%.

U.S. Indices’ Performance Monday

Analyst Color:

Market participants are now bracing for a range trade at the S&P 500 Index over the near-term, around the 3,800 to 4,200 levels, Morgan Stanley's chief U.S. equity market strategist Michael Wilson said earlier this week.

Conviction levels are low, given broadly elevated valuations and a challenging macro/fundamental backdrop, the analyst said. He sees very little appetite to dive back into areas of the market that have significantly underperformed like small caps, regional banks and lower-quality cyclicals.

Large-cap tech remains well-owned, and there is little demand for traditional defensives despite outperformance over the last two months, he added.

Wednesday's Trading In Major US Equity ETFs: In midday trading on Wednesday, the SPDR S&P 500 ETF Trust SPY was 0.84% higher to $413.69, the SPDR Dow Jones Industrial Average ETF DIA rose 1% to $333.75 and the Invesco QQQ Trust QQQ was 0.7% higher to $329.7, according to Benzinga Pro data.

Almost all U.S. equity sectors were positive, except for defensive plays such as  the Consumer Staples Select Sector SPDR Fund XLP, down 0.4%; the Health Care Select Sector SPDR Fund XLV down 0.3%; and the Utilities Select Sector SPDR Fund XLU, down 0.1%. 

The Energy Select Sector SPDR Fund XLK and the Financial Select Sector SPDR Fund XLF were the top performers for the day, both up 1.8%. 

Latest Economic Data:

• Mortgage applications in the United States fell 5.7% in the week ending May 12, reversing a 6.3% increase the previous week, according to statistics from the Mortgage Bankers Association.
• The Commerce Department reported that housing starts increased 2.2% month-over-month to a seasonally adjusted annualized rate of 1.401 million in April, contrary to market expectations of 1.4 million.
• Revisions to the March data reveal a steeper 4.5% decline compared to the first estimates of a 0.8% loss.
• According to the EIA Petroleum Status Report, U.S. crude oil stocks increased by 5.04 million barrels in the week ending May 12, the largest weekly gain in 12 weeks, far exceeding market forecasts of a 920,000-barrel reduction. 

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Stocks In Focus:

Tesla, Inc. TSLA rose over 4% following its annual shareholder meeting held after the market close on Tuesday.

• Western Alliance Bancorp climbed over 10% after it suggested that deposits growth accelerated in the quarter-to-date period. Peers U.S. Bancorp USB, PacWest Bancorp. PACW, Citizens Financial Group, Inc. CFG etc. were all higher. 
• Cisco Systems, Inc. CSCO is due to report after the market close.

Commodities, Bonds, Global Equity Markets

Crude oil skyrocketed 3.4%, with a barrel of WTI-grade crude falling to $72.9. The United States Oil Fund ETF USO was 3.5% higher to $64.70 per share.  

Treasury yields rose, with the 10-year yield up by 3 basis points to 3.57% and the two-year yield up 7 basis points to 4.16%. The iShares 20+ Year Treasury Bond ETF TLT was 0.1% lower for the day. 

The dollar slightly strengthened, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.2%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.2% lower to 1.0842.

European equity indices were all in the green. The iShares MSCI Eurozone ETF EZU rose 0.6%. 

Gold fell 0.2% to $1,983/oz. The SPDR Gold Trust GLD was 0.3% lower to $184.30. Silver ticked 0.3% up to $23.78, with the iShares Silver Trust SLV rising 0.1% to $21.84 per share. Bitcoin BTC/USD fell 0.5% to $26,911.

Staff writer Piero Cingari updated this report midday Wednesday. 

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