Stocks extend range

Whether May turns out to be an up or down month for stocks, it sure got off to an interesting start—and not surprisingly, interest rates, banks, and the jobs market were at the center of the story.

The S&P 500 (SPX) opened last week hitting its highest level since February 2 (the current year-to-date high), then retreated for three days as traders digested another Fed rate hike and more bank-sector volatility.

After closing at a six-day low on Thursday, the market surged nearly 2% on Friday—despite a stronger-than-expected jobs report that may have increased the odds that interest rates remain higher for longer—although not enough to flip the week into positive territory:

The headline: Stocks waver with inflation numbers in the wings.

The fine print: Congestion continues to be the stock market’s dominant theme. Despite a recent uptick in day-to-day volatility, the SPX has traded in a fairly narrow range since early April, but it’s arguably been stuck in a larger consolidation since December, when it concluded the first leg of its rebound off the October lows.

The number: 96%, the odds (as of Friday) that the Fed will leave rates unchanged after it concludes its June 13-14 policy meeting.¹

The move: Crude oil’s -17% intraweek plunge and 12% rebound. (Natural gas fell more for the week, though.)

The scorecard: The Nasdaq 100 (NDX) tech index ended the week in the plus column:

Sector returns: The strongest S&P 500 sectors last week were health care (+0.1%), utilities (unchanged), and consumer discretionary (-0.4%). The weakest sectors were energy (-5.9%), financials (-2.7%), and communications services (-2.3%).

Stock movers: Western Alliance Bancorp (WAL) +49% to $27.16, Owens & Minor +37% to $18.63, both on Friday. Chegg (CHGG) -48% to $9.08 on Tuesday, Enviva (EVA) -67% to $7.01 on Thursday.

Futures: June WTI crude oil (CLM3) tumbled as low as $63.64 last Thursday—down 17% for the week—before rebounding to close up for the day, then rallied more than 4% on Friday to end the week above $71. June gold (GCM3) made another push toward record highs, tagging $2,085.40 last Thursday before retreating Friday to close the week around $2,025. Week’s biggest up moves: July hard red wheat (KWN3) +7.3%, July oats (ZON3) +5.5%. Week’s biggest down moves: June natural gas (NGM3) -12.4%, June hogs (HEM3) -8.6%.

All eyes will be on the CPI and PPI to see if they can deliver what Friday’s jobs report didn’t—more evidence of falling inflation:

●Monday: Wholesale Inventories, New York Fed Survey of Consumer Expectations
●Tuesday: NFIB Business Optimism Index
●Wednesday: Consumer Price Index (CPI)
●Thursday: Producer Price Index (PPI)
●Friday: Import and export prices, Consumer Sentiment (preliminary)

Here’s a sample of the roughly 2,500 earnings announcements scheduled for this week:

●Monday: Axsome Therapeutics (AXSM), Tyson Foods (TSN), Novavax (NVAX), Palantir (PLTR), Plug Power (PLUG), PayPal (PYPL), Western Digital (WDC)
●Tuesday: Ideaya Biosciences (IDYA), Piedmont Lithium (PLL), Airbnb (ABNB), Duolingo (DUOL), Electronic Arts (EA), Occidental Petroleum (OXY), Q2 (QTWO), Rivian Automotive (RIVN), SciPlay (SCPL)
●Wednesday: New York Times (NYT), Wendys (WEN), Disney Walt (DIS)
●Thursday: Autohome (ATHM), Tapestry (TPR), US Foods (USFD), Yeti (YETI), Amylyx Pharmaceuticals (AMLX)
●Friday: Spectrum Brands (SPB)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

As discussed in “Signs of progress, elements of uncertainty,” traders and investors will likely be hearing much more about the debt ceiling in the coming weeks.

Last week Treasury Secretary Janet Yellen said the so-called “X-date”—the day the US will default on its debt if Congress doesn’t agree to raise the debt ceiling—could arrive as early as June 1.² As Morgan Stanley & Co. analysts explain, while there’s debate on exactly when the X-date will arrive (and speculation that Yellen was simply attempting to prod politicians to take action), there’s little doubt that the pinch of the debt vise is not far away.³ (At the very least, an initial meeting between the White House and Congressional leaders is scheduled for Tuesday.)

In addition to the uncertainty surrounding the X-date, the analysts also note the different ways the situation could play out: raising the debt ceiling without restriction, budget cuts in exchange for raising it, a temporary suspension of the debt ceiling, or the White House taking unilateral measures to avoid default.

While few analysts expect an actual default—Congress has raised the debt ceiling 78 times since 1960—the longer the stalemate drags on, the more difficult it could be for the market to avoid the type of volatility that accompanied the debt-ceiling standoff—and the downgrade of US debt—in 2011.

Uncertainty—especially multiple layers of it—is rarely a positive for sentiment, especially in a market grappling with interest rate and recession concerns.

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¹ CME Group (www.cmegroup.com). CME FedWatch Tool. 5/5/23.
² APNews. Treasury’s Yellen says US could default as soon as June 1. 5/1/23.
³ MorganStanley.com. Congress contends with the Debt Ceiling. 5/3/23.