Friday's Market Minute: Technology Stocks Overshadow Concerns of the Debt Ceiling

Equites were mixed in yesterday’s trading, with the Nasdaq remaining in a strong continuation pattern on the back of strong revenue guidance from Nvidia (NVDA) while the broader S&P 500 is still unable break above late January highs.

The recent excitement around technology stocks has overshadowed the debt ceiling impasse, which remains a concern, as well as interest rates and the U.S. dollar that have been moving higher against major reserve currency peers such as the yen and euro. The yield on 2-year Treasury notes has also quietly risen to the highest level since the regional bank stress began back in March.

Since the Fed makes policy decisions that closely track the two-year yield, the recent rise implies the bond market is currently at ease with the banking system as well as perhaps the expectation of an amicable resolution to the ongoing debt ceiling debate.

When it comes to the health of the overall economy, the spread between 3-month and 10-year Treasuries remains deeply inverted, suggesting a recession is on the horizon. However, it is extremely difficult to pinpoint the exact time, magnitude, and duration of economic contraction.

Along with the yield curve inversion, the trend in initial jobless claims must also begin to rise along with consecutive monthly upticks in unemployment. With that said, new jobless claims printed a lower than expected number this week on top of downward revisions to the previous week.

1Q gross domestic product figures were also revised higher, which corresponds to higher interest rates indicating an economy that is still trending in the right direction. The FOMC meeting minutes released earlier in the week read largely as market participants expected.

There remains a clear divide between committee members that are concerned about the tightening lag and tighter credit conditions and those that feel more hikes are needed due to insufficient progress on inflation so far. With earnings season winding down, investors’ attention will shift to the next labor market report, inflation data, and the mid-June FOMC meeting.

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