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Wall Street sees weekly gains despite debt ceiling talks’ collapse

With little economic data to go on, investors focused on morsels from the Federal Reserve and ongoing negotiations regarding the U.S. debt ceiling this week, as recession estimates keep getting pushed further down the road.

MANHATTAN (CN) — As forecasts for a recession have been extended to the latter half of this year, investors notched a few small wins this week on scraps of economic data and hope for a debt ceiling compromise before June.

Increases for the week were marginal in the Dow Jones Industrial Average and S&P 500, which saw increases to 126 points and 67 points, respectively. The Nasdaq, which has enjoyed gains from tech-heavy companies recently, saw a slightly better increase this week, gaining 373 points by the closing bell on Friday.  

The latest retail sales numbers also helped boost Wall Street. On Tuesday, the U.S. Census Bureau reported that monthly retail sales estimates rose 0.4% last month, which was worse than expected. The prior month’s sales were revised down from a 0.6% decline to a 0.7% fall.

Experts say the report shows consumers are still spending, as 0.4% gains in retail consumption is considered a “good month” and helped to recoup losses from the prior two months. Further, control retail sales increased 0.7% last month, which helped to more than recoup the losses in March.

However, sales are down 0.2% over the last six months, a closer look at April’s data shows sales across sectors are uneven. Online retail, bars and restaurants and general merchandise all saw an increase, while furniture, electronics stores, and food and beverage stores all saw a decrease. Gasoline stations also saw a decrease.

The numbers show “how the consumer isn’t showing any signs of slowing down and that the recession many are forecasting is farther into the future than anyone would expect,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance. “However, there are many risks to the economy and markets ahead: the debt ceiling standoff, the ongoing issues with the regional banks and a potential for a commercial real estate bust.”

Zacarelli added that “we have been pleasantly surprised by the resilience of the economy and are beginning to believe that 2023 may turn out to be a good year or stocks and it’s 2024 that we should worry about instead.”

The path through the rest of the year will be, in part, affected by how Congress deals with the impending debt ceiling. The federal government has until June to create a deal to raise the $31.4 trillion debt ceiling.

Things are looking grim on the debt ceiling after Republicans walked away from the table with the White House on Friday, causing markets to give up some of the week’s earlier gains.

Biden administration officials have been pressing lawmakers to patch the debt ceiling and avoid a default — and economic crisis — before June, and the business community has stressed the importance of a deal, with U.S. Chamber of Commerce head lobbyist Neil Bradley saying “it is impossible to overstate the urgency and the negative consequences that would occur if the United States were to default on its debt.”

The silver lining to the debt ceiling kerfuffle is it gives the Federal Reserve justification for not raising rates again when it meets next month. On Friday, Fed Chair Jerome Powell said that “our policy rate may not need to rise as much as it would have otherwise to achieve our goals” due to tighter credit conditions.

The comments helped stabilize markets, and helped push the Fed Funds futures market down, a good measure for what Wall Street expects the central bank to do on interest rates. Even before Friday’s news, analysts predicted the next consumer price index would saw the central bank’s Federal Open Markets Committee (FOMC) to avoid raising or lowering rates for some time.

“Fortunately for Fed officials, they have another month’s worth of economic data — including another CPI inflation and jobs report — released before the June FOMC meeting to decide whether to raise interest rates again,” wrote Oren Klachkin at Oxford Economics in an investor’s note earlier in the week. “While inflation remains far above the 2% objective, we think Fed officials will stand pat and let righter bank lending standards do some of their work for them.”

Categories:Financial, National

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