Daily market review

Equities had another poor performance today due to uncertainty surrounding the debt ceiling, which compounded the losses from the previous day. The X-date, potentially as early as June 1, is approaching rapidly, but reports suggest that negotiations on the debt ceiling have reached an impasse.

These reports were somewhat supported by House Speaker McCarthy, who informed reporters that there are still significant disagreements on various issues in the debt ceiling negotiations. Nevertheless, he expressed determination to continue the talks today and remains hopeful for progress.

In addition to the debt ceiling concerns, market participants were also grappling with worries about potential interest rate hikes. Fed Governor Waller's recent speech on policy rate hikes, emphasizing the need for flexibility and the priority of combating inflation, contributed to these concerns. The release of the minutes from the May 2-3 FOMC meeting did not contain any surprising information but highlighted participants' agreement on persistently high inflation and their uncertainty regarding appropriate future policy tightening.

Despite these rate hike concerns, the focus of the market remained on the anxiety surrounding the debt ceiling, leading to a broad retreat. While the major indices closed in negative territory, they did recover somewhat from their lowest levels of the day during a brief rebound in the late afternoon. This temporary increase was driven by a buy program, as all 11 S&P 500 sectors moved up simultaneously, without any specific news to account for the improvement.

However, before the closing bell, the major indices pulled back again. Market breadth was skewed towards decliners, with a greater than 3-to-1 margin of decliners over advancers at the NYSE and a greater than 2-to-1 margin at the Nasdaq.

Among the S&P 500 sectors, 10 out of 11 declined, with the real estate sector experiencing the largest loss by a significant margin (-2.2%). The financials (-1.3%) and industrials (-1.3%) sectors were also among the top laggards.

The energy sector (+0.5%) was the only sector in positive territory at the close, benefiting from the increase in oil prices ($74.26/bbl, +1.35, +1.9%) after the weekly EIA inventory report showed a substantial decrease of 12.46 million barrels in crude stockpiles.

Meanwhile, the consumer discretionary sector (-0.2%) had the smallest decline today. This sector was partially supported by Amazon.com (AMZN 116.75, +1.76, +1.5%) and strong performance from homebuilder components. Toll Brothers (TOL 65.09, +1.34, +2.1%), although not a sector component, reported positive earnings.

Some notable outperformers in terms of earnings and/or guidance were retailers Urban Outfitters (URBN 31.35, +4.69, +17.6%), Abercrombie & Fitch (ANF 30.16, +7.15, +31.1%), and Kohl's (KSS 20.72, +1.45, +7.5%). Conversely, Analog Devices (ADI 173.20, -14.72, -7.8%) was a top laggard after providing disappointing guidance, which also had a negative impact on other semiconductor stocks. The PHLX Semiconductor Index fell 1.7%.

In the Treasury market, there was volatility, and yields mostly ended lower. The 2-year note yield remained unchanged at 4.34%, while the 10-year note yield rose by two basis points to 3.72%.

The MBA Mortgage Application Index for the week experienced a decline of 4.6%. This drop can be attributed to a 4.0% decrease in purchase applications and a 5.0% decline in refinance applications.

Regarding crude oil inventories, the weekly EIA report indicated a drawdown of 12.46 million barrels, in contrast to the previous week's build of 5.04 million barrels.

The 10-year Treasury Note experienced a slight decline of -1/32, resulting in a yield of 3.72%. Looking at the NYSE, there were 668 advancing stocks and 2,197 declining stocks, with a trading volume of 826 million shares. On the Nasdaq, 1,367 stocks advanced while 3,075 stocks declined, with a substantial trading volume of 4.1 billion shares.

In terms of the industry watch, the energy sector stood out as a strong performer, while the financials, industrials, materials, and healthcare sectors exhibited weakness. Several factors had an impact on the market's movement. Firstly, market participants were deeply concerned about the approaching X-date and the implications of the debt ceiling, which could potentially occur as early as June 1. Secondly, there were positive reactions in response to select earnings reports. Additionally, Treasury yields were observed to be on the rise. Lastly, apprehensions arose regarding possible rate hikes after Fed Governor Waller, who holds a voting position within the FOMC, hinted at the likelihood of another rate hike in June.