The S&P 500 responded positively this week to investor hopes of a deal being struck to extend the U.S. government debt ceiling.
As the June 1 deadline for a U.S. default pushes closer, both President Joe Biden and House Speaker Kevin McCarthy have given reassurances that a deal is in the works and a bankruptcy crisis will not be reached. Some of the investor hope for a resolution was extinguished Friday when Republicans walked out of negotiations and said the talks were at a standstill.
Biden left for Japan on Thursday for a G7 meeting and is slated to return on Sunday to wrap up talks
Mixed signals on consumer health
Data released on Tuesday for U.S. retail sales during April disappointed some analysts by falling short of expectations. U.S. retail and food services sales were up 0.4% on the month and 1.6% year-over-year.
While bouncing back from two consecutive months of decline, the failure of retail sales to live up to economist forecasts of an 0.8% rise had analysts torn over whether the data showcases strength for the market or recessionary pressure.
Blended quarterly earnings released this past week from major retail stores further muddied the picture. Despite high inflation and rising interest rates, some large retailers posted better-than-expected results.
Home Depot reported a first-quarter sales decline of 4.2% against the same quarter last year, taking gross profit down by 4.5%. Walmart reported sales growth of 7.6% year-on-year, beating estimates and leading several analysts to raise their 12-month price targets. Target beat estimates and reported 0.6% year-on-year sales growth. Various analysts dropped their price targets and the retailer reported that “the customer is under pressure.”
Netflix shares jumped Thursday after the streaming platform said its recently released “basic with ads” subscription model has nearly 5 million global monthly active users.
What to watch
Earnings reports to watch in the week ahead include Dick’s Sporting Goods and Lowe’s Companies on Tuesday; Kohl’s and XPeng on Wednesday; Dollar Tree and Best Buy on Thursday; and Big Lots on Friday.
In the week ahead, minutes from the latest Federal Open Market Committee meeting will be released Wednesday, lending a glimpse into the conversations that led to the decision to raise interest rates by another 0.25% earlier this month.
On Friday, the Personal Consumption Expenditures index for the month of April will be released — the Federal Reserve’s preferred inflation gauge — as well as the University of Michigan’s consumer sentiment report.