Stocks are slightly higher, as Congressional leaders express cautious optimism that a debt-ceiling deal can be reached within days. The negotiating teams from both parties agreed that defaulting is not an option and continue to work toward an agreement, as the X-date of early June is fast approaching.Â
After Home Depot yesterday and Target today, other consumer bellwethers, such as Walmart and TJX Companies, are set to report later this week, concluding the earnings season. Target’s results were somewhat mixed, as better-than-expected earnings for the quarter were offset by weaker earnings guidance for the second quarter. The company noted some weakness in discretionary categories, offset by strength in household essentials.Â
Elsewhere, Treasury yields are little changed, while oil and the dollar are higher.
Also helping market sentiment was that regional banks are higher today, as Western Alliance Bancorp reported improving deposit growth. Shares of the lender jumped after the company said that deposits have now increased $2 billion since the end of the first quarter and highlighted an uptick in the percentage of insured deposits.Â
Despite today’s bounce, regional banks are still down about 30 percent year-to-date following the recent turmoil in the sector.
Profit headwinds remain as more regulations are likely coming and banks might need to pay higher costs to attract deposits, but it is encouraging that deposit outflows have stabilized.
Major equity indexes have largely moved sideways over the past two months, as investor confidence is low.
The S&P 500 has not had a week where it moved more than up or down 1 percent in the last six, the longest stretch since 2019, reflecting several crosscurrents.
Headwinds to economic growth have increased, as the Fed has continued to hike rates and as near-term anxiety about the debt ceiling is keeping investors on the sidelines. However, consumer spending is holding up despite high inflation and high interest rates, supported by a still-solid labor market.
We think that the inflation and Federal Reserve policy headwinds are easing, but the economic-growth slowdown is still ahead of us, making the case for investors to align portfolios with the long-term strategic (neutral) allocations of their goal-oriented investment strategies.Â
We expect the debt-ceiling impasse will be resolved, but it may come down to the wire, as it has in recent years.
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