Wall Street Breakfast Podcast: The Default Saga Ends
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U.S. avoids default with passage of the debt ceiling bill, markets brace for the May jobs report and clues about rates and recession and the S&P 500 hits a 9-month high.
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Transcript
Leading today’s news:
Congress pushed a debt limit deal past the finish line, avoiding a first-ever default by the U.S. that could have triggered a global crisis.
Late Thursday night, the Senate passed the debt ceiling package crafted by President Joe Biden and House Speaker Kevin McCarthy, sending the legislation to the president's desk.
Senators voted 63 to 36 in favor of the bill that suspends the debt limit until January 1, 2025. In exchange there are measures that reduce non-defense discretionary spending, stiffen work requirements for some recipients of food assistance and allow the Mountain Valley natural gas pipeline.
Votes in favor surpassed the supermajority threshold of 60 votes required for the legislation. Some 17 Republicans joined 44 Democrats and two independents in voting for the bill.
Four Democrats voted against it, as did 31 Republican Senators. The vote came after the chamber voted on 11 amendments, all of which failed.
Biden said he's looking forward to signing the bill into law as soon as possible. He'll address the country at 7 p.m. ET this evening.
Senate Minority Leader Mitch McConnell tweeted that the vote was "an important step toward fiscal sanity."
In other market news –
It’s jobs Friday. The May employment report hits at 8:30 a.m. ET.
Along with the CPI, the jobs report is the most closely watched economic indicator.
The consensus among economists is that nonfarm payrolls rose by 180,000 last month, down from 253,000 in April. The unemployment rate is expected to tick up to 3.5% from 3.4%.
Going into the print, recent data pointed to a continued robust labor market. Wednesday's JOLTS report showed an unexpectedly large increase in job openings, and Thursday's ADP private payrolls report also came in stronger than expected.
Julia Pollak, chief economist at ZipRecruiter, says she is seeing signs that the labor market is starting to slacken. For example, the quits rate in the April JOLTS report fell to 2.4%, just above its pre-pandemic level of 2.3% and well below the peak of 3%.
The quits rate provides more of a "valid measure of the labor market tightness and activity" than job openings, she says, adding “watch what workers are doing rather than what companies are saying in a survey.”
The numbers will be crucial to the Fed. Fed chief Jerome Powell has emphasized that the labor market remains unsustainably tight.
Seeking Alpha analyst Damir Tokic expects the labor market will start to turn negative soon. Temporary help service jobs have been falling since December 2022 signaling that "it is very likely that we are in a recession, or near one," he said.
What's yet to be seen is whether the slowdown is the start of a recession or whether the economy is settling down to slower growth after rebounding from the pandemic-induced economic cliff of 2020.
ZipRecruiter’s Pollak says: "It's not clear whether we're getting a recession or whether we're just getting into kind of a new normal that is sustainable and healthy and that the story is different across industries and across regions."
News of an approaching debt limit deal lifted market sentiment in afternoon trading on Thursday, helping the S&P 500 (SP500) (SPY) to close at a nine-month high.
The S&P notched a 1% gain, while the Dow (DJI) (DIA) rose half a percent and the Nasdaq Composite (COMP.IND) (QQQ) climbed 1.3%.
Importantly the S&P managed to close firmly above 4,200. That’s been a tough resistance level and before this week bulls were rebuffed in several attempts to break out of the range. The technical move could bring in more cash from hedge funds, which last week started unwinding net short positions that were at a bearish level not seen since 2009.
Along with the debt ceiling deal, stocks enjoyed an inaugural June rally on “the prospect that the Fed might finally pause their rate hikes at the next meeting, along with further signs that inflation is still falling,” according to Deutsche Bank’s Jim Reid.
The markets are now pricing in more than a 70% chance that the FOMC will pause at its June meeting before hiking by another quarter point in July.
Yesterday, Philly Fed President Patrick Harker reiterated his call of the Fed to skip a hike this meeting, adding that the Fed is close to a point where it can hold the fed funds rate steady.
ING says, in the end, “the largest factor for markets to pare their hike expectations is the inflation story.”
But BN Capital's Leo Nelissen says "traders are cherry-picking market headlines." "While debt ceiling headlines are a reason for optimism, economic data continues to deteriorate," he adds.
Some customers who signed up for an Apple (AAPL) Savings account, offered through its partnership with Goldman Sachs (GS), have run into snags in withdrawing their money.
One customer tried to transfer $1,700 from his Apple account to JPMorgan Chase (JPM) on May 15. Each time he contacted Goldman's customer service department, he was told to wait a few days. The transfer finally went through on May 31, The Wall Street Journal reported.
In April, Apple rolled out the high-yield savings account, which is linked to the Apple credit card, touting its annual percentage yield of 4.15%. That attracted attention as the average yield for savings accounts is 0.25% annual percentage yield, according to Bankrate's May 31 survey of institutions.
That customer wasn't the only one experiencing issues in accessing funds, the article said. In some cases, the money appeared to have disappeared, not showing up in either the Apple Card account or in the account they were trying to transfer it to. Goldman customer service representatives sometimes offered different explanations of what to do, they said, according to the Journal.
"The customer response to the new Savings account for Apple Card users has been excellent and beyond our expectations," a Goldman Sachs spokesperson told Seeking Alpha. "While the vast majority of customers see no delays in transferring their funds, in a limited number of cases, a user may experience a delayed transfer due to processes in place designed to help protect their accounts."
Other market headlines to watch for on Seeking Alpha:
Microsoft (MSFT) explores ways to close its Activision deal, despite a U.K. block
Eli Lilly (LLY) tops J&J (JNJ) to become world's most valuable drugmaker
AbbVie (ABBV), Amgen (AMGN) hit 52-week lows
SentinelOne (S) stock slumps 30% on slashed guidance
Broadcom (AVGO) results, guidance beat Wall Street estimates
Customer funds stored in payment apps could be vulnerable, the CFPB warns
MongoDB (MDB) jumps on results, says it’s 'well positioned' to gain from AI applications
Uranium stocks rally as Senate committee OK's aid for advanced nuclear reactors
Stratasys (SSYS) gains after unsolicited takeover offer from 3D Systems (DDD)
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