Stocks Rally on Hopes for Progress on U.S. Debt Ceiling Negotiations

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +1.19%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.24%, and the Nasdaq 100 Index ($IU) (QQQ) closed up +1.22%.

Stock indexes Wednesday posted moderate gains, with the S&P 500 climbing to a 2-week high and the Nasdaq 100 climbing to a 9-month high.  Optimism for a resolution to the debt ceiling impasse fueled Wednesday’s rally in stocks.  The talks shifted to a narrower group of staff-level negotiators in hopes of yielding a deal to avert a U.S. default.  House Speaker McCarthy, after he met with President Biden on Tuesday, said that the two sides are “far apart” but that a deal was still possible by the end of the week. President Biden is leaving for the G-7 summit in Japan today but is cutting his 7-day trip short to return to Washington on Sunday to work on the debt ceiling.

Stock index futures maintained moderate gains on mixed U.S. housing news after Apr housing starts unexpectedly rose +2.2% to 1.401 million, stronger than expectations of a decline to 1.400 million.  However, Apr building permits, a proxy for future construction, fell -1.5% m/m to 1.416 million, weaker than expectations of 1.430 million.

Global bond yields on Wednesday were mixed.  The 10-year T-note yield jumped to a 2-week high of 3.587% and finished up +4.0 bp at 3.574%.  The 10-year German bund yield fell -1.7 bp to 2.336%, and the UK 10-year gilt yield rose +2.1 bp to 3.837%.

On the bullish side for stocks, regional bank stocks rallied, led by an +11% jump in Western Alliance after it reported Q2 deposit growth of +$2 billion as of May 12.   Also, airline stocks moved higher Wednesday on signs of stronger demand for air travel. In addition, Keysight Technologies closed up more than +7% after reporting stronger-than-expected Q1 adjusted EPS and forecasting Q3 adjusted EPS above consensus.

On the bearish side, Intapp closed down more than -15% after the company offered 2 million shares and selling stockholders offered 4.25 million shares via Bank of America Securities and Barclays.  Also, On Holding closed down more than -7% after Williams Trading downgraded the stock to sell.  In addition, Doximity closed down more than -5% after forecasting Q1 revenue well below consensus.

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 closed up +0.18%.  China’s Shanghai Composite closed down -0.21%, and Japan’s Nikkei Stock Index closed up +0.84%. 

Today’s stock movers…

Regional bank stocks rallied Wednesday, led by an +11% jump in Western Alliance (WAL) after it reported Q2 deposit growth of +$2 billion as of May 12.  Other regional bank stocks rose on the news, with Comerica (CMA) closing up more than +12% to leading gainers in the S&P 500.  Also, PacWest (PACW) closed up more than +21%, and Zions Bancorp (ZION) closed up more than +9%. In addition, KeyCorp (KEY) and Lincoln National (LNC) closed up more than +8%, and Regions Financial (RF), Truist Financial (TFC), and Huntington Bancshares (HBAN) closed up more than +6%. Finally, Citizens Financial Group (CFG), US Bancorp (USB), and M&T Bank (MTB) closed up more than +5%.

Airline stocks moved higher Wednesday on signs of stronger demand for air travel after the International Air Transport Association reported forward bookings for the May-September period are +35% higher than in the same period in 2022.  As a result, Delta Air Lines (DAL) closed up more than +6%. Also, United Airlines Holdings (UAL) and Alaska Air Group (ALK) closed up more than +5%. In addition, American Airlines Group (AAL) and Southwest Airlines (LUV) closed up more than +4%. 

Chip stocks rallied Wednesday to lead technology stocks higher. Marvell Technology (MRVL) closed up more than +4% to lead gainers in the Nasdaq 100.  Also, Nvidia (NVDA), Applied Materials (AMAT), Microchip Technology (MCHP), ON Semiconductor Corp (ON), and NXP Semiconductors NV (NXPI) closed up more than +3% 

Keysight Technologies (KEYS) closed up more than +7% after reporting Q1 adjusted EPS of $2.12, stronger than the consensus of $1.95, and forecast Q3 adjusted EPS of $2.00-$2.06, above the consensus of $1.96. 

Progressive Corp (PGR) closed up more than +5% after it reported April net premiums written were $6.08 billion, up +26% y/y.

Wynn Resorts (WYNN) closed up more than +5% after Barclays upgraded the stock to overweight from equal weight with a price target of $135. 

Tesla (TSLA) closed up more than +4% after CEO Musk said the company would start advertising, a major shift for the company that has shunned traditional marketing to sell its vehicles. 

Intapp (INTA) closed down more than -15% after the company offered 2 million shares, and selling stockholders offered 4.25 million shares via Bank of America Securities and Barclays.

On Holding (ONON) closed down more than -7% after Williams Trading downgraded the stock to sell from hold.

Doximity (DOCS) closed down more than -5% after forecasting Q1 revenue of $106.5 million-$107.5 million, weaker than the consensus of $111.8 million.

Everest re Group (RE) closed down more than -2% after it offered 3 million shares via Citigroup Global Markets and Goldman Sachs. 

Across the markets…

June 10-year T-notes (ZNM23) on Wednesday closed down -11 ticks, and the 10-year T-note yield rose by +4.0 bp to 3.574%.  June T-notes Wednesday fell to a 2-week low, and the 10-year T-note yield rose to a 2-week high of 3.587%.  A rally in stocks Wednesday on hopes for progress in the debt ceiling negotiations reduced the safe-haven demand for T-notes.  Weak demand for the Treasury’s $15 billion auction of 20-year T-bonds sent T-note prices to their lows Wednesday afternoon as the auction had a bid-to-cover ratio of 2.56, below the 10-auction average of 2.60.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.