[Chart courtesy of MarketWatch.com]

1. Moving the markets

Wall Street was in a gloomy mood today as the debt ceiling deal faced uncertainty and opposition in Congress. The House Rules Committee approved the deal, but the final vote will take place tonight at 8:30pm EST. The major indexes stayed in the red all day, despite a late rally that trimmed some losses.

Investors are wondering if the deal will pass in time to avoid a default, or if more negotiations and delays are ahead. Some lawmakers have expressed their dissent, which could jeopardize the whole process.

The month of May was a mixed bag for the market. The S&P 500 barely gained +0.26%, the Dow lost over 3%, but the Nasdaq soared by 6%. However, this performance was driven by a few tech giants, like Nvidia, which surged 40% in May but fell 10% yesterday.

The market’s strength was too narrow and uneven. The top five S&P stocks averaged a whopping 50% mean return this year, while the rest of the 495 stocks were flat. This does not reflect a healthy bull market, but rather a bear market rally.

Adding to the bearish sentiment were some conflicting signals from the Fed officials. Some of them hinted at raising rates sooner to curb inflation, while others suggested pausing or skipping rate hikes to see more data. The Fed’s stance was as clear as mud.

On the economic front, we saw a sharp drop in the Chicago PMI, but a strong increase in job openings in April. The Citi Economic Surprise index bounced back in May.

Some notable stocks that suffered in May were Budweiser and Target. Bond yields and the US dollar rose, while gold slipped below $2k but held above its March lows.

The market is facing a divergence between commodities, real yields, and the dollar on one hand, and the tech frenzy fueled by AI on the other. How long can this gap last?

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The debt ceiling drama is far from over. Even though the two parties have reached a tentative deal, they still need to pass it in Congress by tomorrow. But many lawmakers are not in town, and some Republicans are not on board. This could spell trouble for the compromise bill.

The markets were optimistic at first, but then reality kicked in. Traders realized that the deal is not a done deal, and that the Fed is still looming large. The Fed’s Barkin admitted that inflation is not going away anytime soon, which raised fears of more rate hikes in June.

The economic data did not help either. The Dallas Fed Manufacturing Survey shrank for the 13th month in a row, consumer confidence fell to its lowest level since 2022, and home prices dropped for the first time in nine years. These are not signs of a strong economy.

The only bright spot was the tech sector, especially the artificial intelligence (AI) stocks. Nvidia became the seventh company to join the $1 trillion club, thanks to its booming chip business.

Bond yields fell, while the dollar wobbled. Gold finally got some love.

So, what’s next for the markets? It all depends on whether the debt ceiling deal gets done, and what the Fed does next. All investors should brace for more volatility and uncertainty in the coming days. Stay tuned for more updates.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Nvidia stole the show today with its stellar earnings report, which sent its stock soaring 25% and added $200 billion to its market value. That’s the biggest one-day gain for any US company ever. The chipmaker also raised its outlook for the next quarter, thanks to the booming demand for artificial intelligence (AI) solutions.

The news lifted other chip stocks as well, but failed to inspire the rest of the market, which remained bogged down by the debt ceiling drama, the banking woes, the rising rates, and the inflation fears. Only 42% of the S&P 500 stocks are above their 200-day moving averages, indicating a narrow rally.

Speaker McCarthy said there was some “progress” in the debt talks, but also “major headwinds” to overcome. Bond yields spiked higher, pushing the US dollar to a six-week high and gold to a two-month low.

It’s hard to make sense of this market, where tech stocks can defy gravity while everything else is sinking. Something has to give eventually.