US Stock Market Responds Positively to Debt Ceiling Vote & Slowing Wage Inflation
Wall Street enjoyed a surge on Thursday as a vote to suspend the U.S. debt ceiling in Congress met with investor approval. The prospect of easing wage inflation pressure contributing to overall inflation also fanned the flames of optimism. There is growing sentiment that these factors may discourage the Federal Reserve from increasing interest rates in the coming fortnight.
Unemployment Claims Rise Modestly, While Wage Inflation Slows
The employment market remains robust despite a minor increase in new unemployment benefit claims last week. This is evidenced by private payrolls surpassing expectations for May. A strong job market could prompt the Federal Reserve to maintain higher rates. However, wage inflation is slowing down. ADP reports align with Labor Department reports indicating a 4.2% rebound rate for the price of labor per single unit of output in the first quarter. This is a downward adjustment from the estimated 6.3% growth rate in May.
Market Confidence Bolstered by Analyst Interpretation of Labor Data
Edward Moya, a senior market analyst at OANDA in New York, observed that while first-quarter unit labor cost data typically doesn't stir a reaction, it indicated a marked improvement. Consequently, market faith that a Federal Reserve rate hike in June is unlikely has strengthened, with reduced confidence in a rate increase for July.
Futures Trading Indicates Lower Likelihood of June Rate Hike
Futures trading reflected this sentiment, with a 75% probability displayed on CME Group's FedWatch Tool that the Federal Reserve would refrain from raising rates at its June 13-14 policy meeting.
Progress on Debt Ceiling Increases Focus on May Jobs Report
The bill that passed the House of Representatives on Wednesday to suspend the $31.4 trillion debt ceiling now awaits Senate approval. This must occur before Monday's deadline to avert a potential government fund shortage. With progress on the debt ceiling front, attention is turning to the upcoming jobs report from the Labor Department for May, which could influence the Federal Reserve's interest rate decisions.
Dow Jones, S&P 500, and Nasdaq Show Healthy Gains
Wednesday saw the Dow Jones Industrial Average climb by 201.97 points, the S&P 500 added 44.85 points, and the Nasdaq Composite increase by 182.02 points. However, not all news was positive, with Salesforce, Goldman Sachs Group, and Dollar General Corp reporting losses, while Meta Platforms Inc noted gains. C3.ai Inc slumped after the AI company issued an annual revenue forecast below Wall Street estimates.
Market Performance Reflects Optimistic Outlook Despite Few Setbacks
Overall, the market's performance leaned positively, with advancing issues outnumbering declining ones on the NYSE and Nasdaq. Despite the market's mixed performance, with the S&P 500 and Nasdaq Composite posting a blend of new highs and lows, the signs of investor optimism amid potential economic policy shifts remain promising.