Stocks Challenge Highs as Bulls Wait for Debt Ceiling Progress


Stocks are challenging their highs for the year as investors wait for Congress to raise the national debt limit.

The S&P 500 rose 1.6 percent between Friday, May 12, and Friday, May 19. It was the biggest gain in the last seven weeks as the index reached its highest levels since August. Growth stocks and the Nasdaq-100 continued to lead the move.

Nvidia (NVDA) released details on new low-priced chips, lifting other big semiconductor names like Advanced Micro Devices (AMD) and Lam Research (LRCX). Tesla (TSLA) stabilized after Elon Musk shifted away from Twitter and outlined new models. Netflix (NFLX) surged after disclosing strong demand for its advertising-based service. ServiceNow (NOW) jumped on its first-ever stock buyback.

Those items followed similar positive events like Alphabet’s (GOOGL) artificial intelligence (AI) presentation on May 10 and the rise of ChatGPT earlier in the year. Combined with cost cuts and shareholder-friendly moves, the developments seem to be giving investors new reasons to embrace large Nasdaq stocks.

There was also good news on the economic front as jobless claims fell more than expected and NAHB’s measure of homebuilder sentiment exited negative territory. Retail sales missed estimates on weak auto demand, but manufacturing boosted industrial production more than forecast. Federal Reserve Chairman Jerome Powell also suggested policymakers may skip hiking rates next month.

Biggest Gainers in the S&P 500 Last Week
Comerica (CMA)+20%
Zions Bancorp (ZION)+19%
Western Digital (WDC)+16%
Capital One Financial (COF)+13%
Catalent (CTLT)+13%
Source: TradeStation Data

Chips Dominate

Semiconductors were the top-performing group last week. The industry, viewed as crucial to the expansion of AI, had been lagging other corners of tech as it held key long-term support. They got an additional boost after Reuters reported that Western Digital (WDC) is getting closer to a potential merger with Japan’s Kioxa.

Regional banks also outperformed as they went a second week without hitting new lows.

Safe havens like gold miners and utilities fared the worst.

S&P 500, daily chart, with select indicators and patterns.

Charting the Market

The S&P 500 neared 4213 on Friday morning before pulling back. It was slightly above the February 1 peak of 4195 and the highest level since August. The move could represent an attempt to escape the tight range that’s formed since early April.

The relative strength index (RSI) escaped from a downtrend and the 10-day moving average started rising. Some chart watchers may notice similar patterns before the rallies of July 2022, October-November 2022, January 2023 and last March. (See the green arrows above.)

The moving average convergence/divergence oscillator (MACD) also turned positive. It isn’t shown on the chart above, but has also tended to rise before the index advances.

The lower end of the current range may be around 4050, near the S&P 500’s lows in April and early May.

Debt Ceiling This Week

The national debt ceiling will be the main issue for investors this week. If things go smoothly, market activity could slow into the long Memorial Day weekend.

President Joe Biden and Speaker of the House Kevin McCarthy plan to meet at some point today. That will follow resumed negotiations between Republicans and Democrats late Sunday. Treasury Secretary Janet Yellen has warned the debt ceiling must be raised by June 1. The country could otherwise default, creating unpredictable and likely catastrophic outcomes.

Biggest Decliners in the S&P 500 Last Week
First Solar (FSLR)-12%
VF (VFC)-10%
Insulet (PODD)-8.8%
Oneok (OKE)-8.2%
Edison International (EIX)-7.4%
Source: TradeStation Data

There are also some big economic reports and a handful of earnings.

New home sales are tomorrow, along with results from Lowe’s (LOW).

Wednesday features minutes from the last Fed meeting and quarterly numbers from NVDA.

Revised first-quarter gross domestic product (GDP) and initial jobless claims are on Thursday morning. Best Buy (BBY) and Costco (COST) report earnings.

Friday brings the personal consumption expenditures (PCE) inflation report, along with durable-goods orders.

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