Equities declined slightly but managed to hold most of yesterday’s rally that pushed the S&P 500 and Nasdaq to their highest since August 2022.
Despite earlier optimism that a debt-ceiling deal could be reached by Sunday, the talks came to a halt midday Friday after Republican negotiators blamed the White House for resisting spending cuts.
Edward Jones analysts said they expect the debt-ceiling impasse will be resolved, but it may come down to the wire, as it has in recent years.
International indexes added to their year-to-date rally, continuing to outperform U.S. equities.
The DAX German index is trading near its record highs, and Japan stocks reached their highest since 1990.
Shares of Deere jumped, as the farm equipment manufacturer reported better-than-expected earnings and boosted its guidance for the full year.
On the flip side, shares of Foot Locker tumbled, as the company cut its sales and profit forecast.
More broadly, the first-quarter earnings season is almost complete, as 95 percent of the S&P 500 companies have reported.
Every S&P 500 sector has beat sales and earnings growth estimates except for utilities.
Better revenue growth, helped by resilient economic growth and pricing power, along with cost-control initiatives, have helped companies exceed low expectations.
Profitability pressures are likely to persist in the quarters ahead as the economy decelerates, but the decline in analyst estimates over the past six months likely captures a good part of the anticipated slowdown.
Along with the rise in stocks, the rise in bond yields was another notable development this week.
Hawkish commentary from Federal Reserve officials temporarily pushed the probability of one more quarter-point hike in June above 40 percent, from 15 percent a week ago.
But the chance of another Fed hike fell again to 22 percent later in the day after Fed Chair Jerome Powell said rates may not have to rise as much as expected to curb inflation.
Analysts said they think that, absent a big surprise in the next inflation and jobs data coming out before the June meeting, the Fed is preparing to step to the sidelines.
After having hiked rates aggressively from near-zero to slightly above 5 percent, monetary policy is now restrictive.
Given how Fed actions tend to filter through the economy with a lag, and based on the gradual improvement in inflation since last year’s peak, a wait-and-see approach to any further policy changes is warranted according to analysts.
A Fed interest-rate pause won’t be a cure-all, but it will be an important step toward a more sustainable recovery.
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