US Stocks Mixed, Treasuries Drop As Optimism Over Debt Ceiling Increase Collides With Hawkish Fed Remarks

Zinger Key Points
  • Investors appear to be pricing in a speedy resolution for the simmering U.S. debt ceiling deadlock.
  • Some Fed members pushed back against market expectations of rate cuts in 2023.

The U.S. stock market was mixed Monday, as hawkish Fed remarks clash with President Joe Biden's words that he is "optimistic" about a debt-ceiling deal as officials prepare for a crucial meeting on Tuesday.

The yield on one-month U.S. Treasury bills, a gauge of the risk associated with a protracted debt-ceiling standoff, fell 7 basis points on Monday, while yields on longer-term maturities rose.

Fed officials Neil Kashkari and Raphael Bostic both dismantled expectations for rate reductions, weighing on the market. 

Cues From Monday's Trading:

Small caps outperformed large caps, value fared relatively better than growth and technology was the best performing sector on Monday.

The S&P 500 index was flat, while blue-chip stocks in the Dow Jones Industrial Average fell 0.1%. 

The tech-heavy Nasdaq 100, rose 0.55%, while small-cap stocks in the Russell 2000 climbed 1%. 

U.S. Indices’ Performance Monday

Index Performance (+/-) Value
Nasdaq 100 +0.55% 13,380.17
S&P 500 Index +0.02% 4,124.98
Dow Industrials -0.12% 33,263.33

Analyst Color:

The debt ceiling deadlock may not be as great of a problem as it is projected to be, fund manager Louis Navellier suggested.

"It remains highly unlikely a default will occur, and if it does that it will be quickly resolved," he said.

The fund manager also noted the sharp drop in consumer sentiment and increases in inflation expectations revealed by the University of Michigan's survey.

"Given these overhangs, don’t be surprised if we stay in a tight trading range until the debt ceiling is resolved which will come the same week as the next Fed’s rate decision," he said.

Monday's Trading In Major US Equity ETFs: In midday trading on Monday, the SPDR S&P 500 ETF Trust SPY was unchanged at $411.78, the SPDR Dow Jones Industrial Average ETF DIA was 0.1% lower to $332.83 and the Invesco QQQ Trust QQQ gained 0.3% to $325.96, according to Benzinga Pro data.

Among the S&P 500's sectors, gains were posted by the Technology Select Sector SPDR Fund XLK, up 0.5%; the Communication Services Select Sector SPDR Fund XLC, up 0.4%; and the Financial Select Sector SPDR Fund XLF and the Energy Select Sector SPDR Fund XLK, both up 0.3%.

Losses were recorded by the Utilities Select Sector SPDR Fund XLU, down 1.5%; the Health Care Select Sector SPDR Fund XLV, down 0.5%; and the Real Estate Select Sector SPDR Fund XLRE and the Consumer Staples Select Sector SPDR Fund XLP, both down 0.4%. 

Latest Economic Data:

The New York Federal Reserve Bank reported a sharp drop in the regional manufacturing survey for May, which printed negative 31.8 points, down from 10.8 recorded in April and well below expectations of a negative 3.7 reading. 

According to Atlanta Fed President Raphael Bostic, there is some chance of entering a recession, but not a deep one. He also stated that even in a recession, he does not foresee rate cuts.

Minneapolis Fed President Neel Kashkari said the Fed has still work to do and that we should not be fooled by a few months of good data. 

Richmond Fed President Thomas Barkin, also a FOMC member, will speak at 12:30 p.m. EDT. Fed Governor Lisa Cook is due to speak at 5 p.m. EDT.

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Stocks In Focus:

  • Charles Schwab SCHW led gains among large banks, rising 3.9% on Monday. Wells Fargo & Company WFC rose 3.7%. Western Alliance Bancorporation WAL rose 10.3%, leading gains among small and mid-sized banks. 
  • ONEOK, Inc. OKE fell over 9%  after it announced a deal to buy Magellan Midstream Partners, L.P. MME for about $14 billion.
  • Newmont Corp. NEM rose 2.2% after agreeing to buy Australia's Newcrest Mining Limited NCMGY for $17.5 billion.
  • Ltd. (NASDAQ MNDY) rose 13% after reporting better-than-expected results in Q1. 
  • SoFi Technologies, Inc. SOFI fell 7% after Wedbush analysts dropped the stock's rating from “Neutral” to “Underperform.”

Commodities, Bonds, Other Global Equity Markets:

Crude oil rose 1.8%, with a barrel of WTI-grade crude falling to $71.3. The United States Oil Fund ETF USO was 1.84% lower to $63.43 per share.  

Treasury yields rose, with the 10-year yield inching 3 basis points up to 3.5% and the two-year yield up 2 basis points to 4%. The iShares 20+ Year Treasury Bond ETF TLT was 1% lower on the day. 

The dollar slightly fell, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, down 0.2%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, ticked 0.2% up to 1.0969.   

European equity indices were mixed, with the iShares MSCI Eurozone ETF EZU was 0.2% higher. 

Gold rose 0.4% to $2,020/oz. The SPDR Gold Trust GLD rose 0.5% $187.65. Silver gained 0.6% to $24.10, with the iShares Silver Trust SLV gaing 0.54% to $22.14 per share. Bitcoin BTC/USD rose 1.8% to $27,412. 

Staff writer Piero Cingari updated this report midday Monday. 

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