U.S. Stocks Grow In Optimism In The Debt Ceiling As Washington Has Yet To Make A Deal

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 (NYSE: WAL) reported a $2-billion deposit increase during the second quarter.

The SPDR S&P Regional Banking ETF (ARCA: 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. 

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%.

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.

 In midday trading on Wednesday, the SPDR S&P 500 ETF Trust (NYSE: SPY) was 0.84% higher to $413.69, the SPDR Dow Jones Industrial Average ETF (ARCA: DIA) rose 1% to $333.75 and the Invesco QQQ Trust (NASDAQ: QQQ) was 0.7% higher to $329.7.

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

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

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.

Produced in association with Benzinga