S&P 500 Maintains Weekly Gain Despite Uncertainty: Republicans Abandon Debt Ceiling Talks, Retail Sector Sends Mixed Signals

The S&P 500 responded positively this week to investor hopes of a deal being struck to extend the U.S. government debt ceiling. 

As the June 1 deadline for a U.S. default pushes closer, both President Joe Biden and House Speaker Kevin McCarthy have given reassurances that a deal is in the works. Hopes among investors for a resolution took a hit on Friday when Republicans withdrew from negotiations, declaring the discussions to be at an impasse.

Biden left for Japan on Thursday for a G7 meeting and is slated to return on Sunday to wrap up the talks. 

Mixed Signals On Consumer Health: Data released on Tuesday for U.S. retail sales during April disappointed analysts by falling short of expectations. U.S. retail and food services sales were up 0.4% on the month and 1.6% year-over-year.

While bouncing back from two consecutive months of decline, the failure of retail sales to live up to economist forecasts of an 0.8% increase had analysts torn over whether the data showcases strength for the market or recessionary pressure.

Blended quarterly earnings released this week from major retail stores further muddied the picture. Despite high inflation and rising interest rates, some big box retailers posted better-than-expected results. 

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Home Depot HD reported a first-quarter sales decline of 4.2% against the same quarter last year, taking gross profit down by 4.5%. Walmart WMT reported sales growth of 7.6% year-on-year, beating estimates and leading several analysts to raise their 12-month price targets. Target TGT beat estimates and reported 0.6% year-on-year sales growth. Various analysts dropped their price targets and the retailer reported that "the customer is under pressure."

Netflix NFLX shares jumped Thursday after the streaming platform said its recently released "basic with ads" subscription model has nearly 5 million global monthly active users. 

What To Watch: Earnings reports to watch in the coming week include Dick's Sporting Goods and Lowe's Companies on Tuesday; Kohl's and XPeng on Wednesday; Dollar Tree and Best Buy on Thursday; and Big Lots on Friday. 

In the week ahead, minutes from the latest Federal Open Market Committee meeting will be released Wednesday, lending a glimpse into the conversations that led to the decision to raise interest rates by another 0.25% earlier this month. 

On Friday, the Personal Consumption Expenditures index for the month of April will be released — the Federal Reserve's preferred inflation gauge — as well as the University of Michigan's Consumer Sentiment report.

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