Debt Ceiling Concerns Nudge Stocks Lower And Treasury Yields Higher; Technical Analyst Predicts Uptrend To Continue

Stocks dipped on Tuesday, while Treasury rates rose, as investors became increasingly concerned about a debt limit deadlock with the default deadline looming.

On Monday, there was no breakthrough during the meeting between President Joe Biden and Speaker of the House Kevin McCarthy (R-Calif.). Treasury Secretary Janet Yellen has said repeatedly that the federal government will run out of money on June 1.

Preliminary PMI data showed a further divergence in performance between the manufacturing and the service sector, with the latter expanding at the fastest pace of over a year. 

Cues From Tuesday’s Trading:

The S&P 500 index eased 0.4%, the Dow Jones was relatively flat for the day, while the Nasdaq 100 index fell 0.7%. Small caps in the Russel 2000 outperformed, up 0.3%. 

Analyst Color:

The market’s resilience in the face of adversities has increased confidence in the near-term trajectory. Carson Group’s Ryan Detrick tweeted a data point that reinforces hopes that the October lows won’t be violated.

“The S&P 500’s 200-day moving average is officially trending higher,” he said.

Going back to data from the past 50 years, this trend was evident 10 other times and not once were new lows made, Detrick said.

“In fact, a strong higher trend was the norm,” he added.

Tuesday's Trading In Major US Equity ETFs: In midday trading on Tuesday, the SPDR S&P 500 ETF Trust SPY was 0.6% lower to $416, the SPDR Dow Jones Industrial Average ETF DIA fell 0.2% to $332.36 and the Invesco QQQ Trust QQQ was 0.8% lower to $335.23, according to Benzinga Pro data.

Almost all U.S. equity sectors were negative, except for the Energy Select Sector SPDR Fund XLE and the Utilities Select Sector SPDR Fund XLUand the Health Care Select Sector SPDR Fund XLV, up 1.7% and 0.3% respectively.  

The Materials Select Sector SPDR Fund XLB and the Technology Select Sector SPDR Fund XLK, suffered the most, down 1.2% and 1% respectively. 

Latest Economic Data:

S&P Global released its manufacturing and service sector surveys. The U.S. Composite PMI increased to 54.5 in May 2023, up from 53.4 the previous month and much higher than the 50 predicted, representing the private sector's highest rate of expansion since April 2022. The Manufacturing PMI came in at 48.5, down from 50.2 in April and below the expected 50. The Services PMI rose from 53.6 in April to 55.1 in May, above market estimates of 52.6. 

The Richmond Federal Reserve’s manufacturing index for May fell to -15 for the headline index down from -10 in April. 

Sales of new single-family homes in the United States surprisingly increased 4.1% month over month in April 2023, to a seasonally adjusted annualized rate of 683,000, the highest level since March last year, and above predictions of 665,000. However, data for March 2023 was drastically revised down, showing a 4% increase rather than the 9.6% increase previously reported. 

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Stocks In Focus:

Moderna, Inc. MRNA rose 8.7% on upbeat data on Protein Replacement Therapy

• Autozone, Inc. AZO fell over 6% after reporting weaker-than-expected revenues. 
• PacWest Bancorp. PACW extended its gains, adding about 12% on top of the 19.55% jump on Monday. The company announced on Monday plans to sell $2.7 billion in real estate loans.
• Among the key companies reporting after the close are Agilent Technologies, Inc. A, Intuit, Inc. INTU, Palo Alto Networks, Inc. PANW, Urban Outfitters, Inc. URBN and Toll Brothers, Inc. TOL.

Commodities, Bonds, Other Global Equity Markets:

Crude oil ticked up 1.7%, with a barrel of WTI-grade crude rising to $733. The United States Oil Fund ETF USO was up 1.91% to $64.12 per share.  

Treasury yields stayed flat, with the 10-year yield rose to 3.72% and the two-year yield up 5 basis points to 4.37%. The iShares 20+ Year Treasury Bond ETF TLT was 0.2% lower for the day. 

The dollar moved higher, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, unchanged. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.4% lower to 1.0810.

European equity indices were mostly in the red, with France underperforming as luxury stocks sold off. The iShares MSCI Eurozone ETF EZU was down 0.4%. 

Gold rose 0.2% to $1,976/oz. The SPDR Gold Trust GLD moved 0.1% higher to $183.4. Silver fell 0.5% to $23.52, with the iShares Silver Trust SLV down 0.3% to $21.61 per unit. Bitcoin BTC/USD rose 1.5% to $27,255.

Staff writer Piero Cingari updated this report midday Tuesday. 

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