U.S. Stocks May Lack Direction Following Yesterday’s Rally

The major U.S. index futures are currently pointing to a roughly flat open on Thursday, with stocks likely to show a lack of direction following the rally seen in the previous session.

Traders may be reluctant to make significant moves on the heels of the surge seen on Wednesday, which partly reflected optimism about an eventual agreement to raise the U.S. debt ceiling.

While President Joe Biden and House Speaker Kevin McCarthy, R-Calif., have both expressed optimism a deal will be reached, traders may wait for more solid signs of progress before making major bets.

Nonetheless, a positive reaction to quarterly results from Walmart (WMT) may generate some buying interest, with the retail giant jumping by 1.7 percent in pre-market trading.

The advance by Walmart comes after the company reported better than expected first quarter results and raised its full-year guidance.

After ending Tuesday’s session mostly lower, stocks showed a substantial move back to the upside during trading on Wednesday. The Dow bounced off its lowest closing level in over a month, while the tech-heavy Nasdaq reached a nearly nine-month closing high.

The major averages moved roughly sideways in the final hour of trading, holding on to strong gains. The Dow jumped 408.63 points or 1.2 percent to 33,420.77, the Nasdaq spiked 157.51 points or 1.3 percent to 12,500.57 and the S&P 500 surged 48.87 points or 1.2 percent to 4,158.77.

The rebound on Wall Street partly reflected optimism lawmakers will eventually reach an agreement on raising the U.S. debt ceiling following Tuesday’s meeting between Biden and top congressional leaders.

A statement from the White House described the meeting as “productive” and said Biden is “optimistic that there is a path to a responsible, bipartisan budget agreement.”

Biden directed staff to continue to meet daily on outstanding issues, with the president cutting short an upcoming overseas trip to ensure Congress takes action by the June 1st deadline to avert default.

McCarthy told reporters following the meeting that the two sides remain “far apart” but said it is “possible to get a deal by the end of the week.”

Regional banks helped lead the rebound on Wall Street, with shares of Western Alliance (WAL) spiking by 10.2 percent after the company said deposit growth for the current quarter exceeded $2 billion as of May 12.

In U.S. economic news, the Commerce Department released a report unexpectedly showing a significant rebound in new residential construction in the month of April.

The report said housing starts jumped by 2.2 percent to an annual rate of 1.401 million in April after plunging by 4.5 percent to a revised rate of 1.371 million in March.

Economists had expected housing starts to drop to an annual rate of 1.405 million from the 1.420 million originally reported for the previous month.

Meanwhile, the Commerce Department said building permits slumped by 1.5 percent to an annual rate of 1.416 million in April after tumbling by 3.0 percent to a revised rate of 1.437 million in March.

Building permits, an indicator of future housing demand, were expected to climb to a rate of 1.430 million from the 1.413 million originally reported for the previous month.

Airline stocks moved sharply higher over the course of the session, with the NYSE Arca Airline Index soaring by 5.8 percent to a two-month closing high.

As mentioned above, substantial strength was also visible among banking stocks, as reflected by the 5.1 percent surge by the KBW Bank Index.

Steel stocks also saw significant strength, driving the NYSE Arca Steel Index up by 3.0 percent. The index bounced off its lowest closing level in almost five months.

Energy, semiconductor, and computer hardware also saw considerable strength, while gold stocks have moved to the downside along with the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are falling $0.31 to $72.58 a barrel after surging $2.05 to $72.89 a barrel on Wednesday. Meanwhile, after falling $8.10 to $1,984.90 ounce in the previous session, gold futures are sliding $13.50 to $1,971.40 an ounce.

On the currency front, the U.S. dollar is trading at 138.21 yen versus the 137.68 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0794 compared to yesterday’s $1.0840.

Asia

Asian stocks advanced on Thursday after U.S. President Joe Biden and House Speaker Kevin McCarthy underscored their determination to reach a debt ceiling deal soon. This helped ease fears of a potential U.S. debt default as a June 1 deadline looms.

Chinese shares eked out modest gains, with the benchmark Shanghai Composite Index rising 0.4 percent to 3,297.32 after data showed the country’s fiscal revenue rose 11.9 percent in the first four months of 2023 from the year-ago period, up sharply from a 0.5 percent rise in January-March.

Hong Kong’s Hang Seng Index climbed 0.9 percent to 19,727.25, led by technology shares. Alibaba jumped 2.7 percent ahead of its earnings release.

Japanese shares rallied after Sony Group Corp. said it is examining a partial spin-off of its financial business. Dovish signals from the Bank of Japan and data showing a bigger-than-expected drop in Japan’s massive trade deficit also boosted sentiment.

Shares of the conglomerate surged 6.4 percent, helping the Nikkei 225 Index close 1.6 percent higher at a 20-month high of 30,573.93. The broader Topix gained 1.1 percent to close at 2,157.85.

Seoul stocks rose to an over two-week high on easing worries about a U.S. debt default. The Kospi advanced 0.8 percent to 2,515.40, marking its highest level since May 2. Samsung Electronics and Hyundai Mobis jumped 2-3 percent.

Australian markets posted solid gains, as weak jobs data spurred hopes that the Reserve Bank will pause future interest rate hikes.

The Australian economy shed 27,100 full-time jobs last month and the unemployment rate rose to 3.7 percent from 3.5 percent, according to official data released earlier in the day.

The benchmark S&P/ASX 200 Index rose 0.5 percent to 7,236.80, while the broader All Ordinaries Index closed 0.5 percent higher at 7,427.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index edged up 0.2 percent to 11,976.08.

Europe

European stocks have moved mostly higher on Thursday after U.S. President Joe Biden and House Speaker Kevin McCarthy underscored their determination to reach a deal reach a debt ceiling deal soon.

While the German DAX Index has surged by 1.5 percent, the French CAC 40 Index is up by 0.8 percent and the U.K.’s FTSE 100 Index is up by 0.5 percent.

Trading volumes are thin, as several markets, including those in the Nordics and Switzerland, remain closed for Ascension Day.

Volkswagen has jumped after the German automaker announced plans to overhaul its core brand to increase efficiency and returns.

Deutsche Bank AG has also surged after reports that the lender will pay $75 million to settle litigation alleging the bank financially benefited from supporting Jeffrey Epstein’s sex trafficking scheme.

British luxury fashion brand Burberry has also soared after reporting better-than-expected fourth-quarter sales.

Premier Foods has also moved sharply higher after posting a strong annual profit and raising its dividend payout.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits fell by more than expected in the week ended May 13th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims slid to 242,000, a decrease of 22,000 from the previous week’s unrevised level of 264,000. Economists had expected jobless claims to dip to 254,000.

The bigger than expected drop came after jobless claims reached their highest level since the week ended October 30, 2021 in the previous week.

The Labor Department said the less volatile four-week moving average also edged down to 244,250, a decrease of 1,000 from the previous week’s unrevised average of 245,250.

A separate report released by the Federal Reserve Bank of Philadelphia showed a continued contraction in regional manufacturing in the month of May, although the pace of contraction slowed by more than expected.

The Philly Fed said its diffusion index for current activity surged to a negative 10.4 in May from a negative 31.3 in April.

While a negative reading still indicates a contraction in regional manufacturing activity, economists had expected the index to show a more modest recovery to a negative 19.8.

The bigger than expected rebound came after the Philly Fed Index dropped to its lowest level since May 2020 in the previous month.

At 9:05 am ET, Federal Reserve Board Governor Philip Jefferson is due to speak on the economic outlook before the National Association of Insurance Commissioners International Insurance Forum.

The National Association of Realtors is scheduled to release its report on existing home sales in the month of April at 10 am ET. Economists expect existing home sales to inch up by 0.1 percent in April after tumbling by 2.4 percent in March.

Also at 10 am ET, the Conference Board is due to release its report on leading economic indicators in the month of April. The leading economic index is expected to decrease by 0.6 percent in April after slumping by 1.2 percent in March.

Dallas Federal Reserve President Lorrie Logan is due also scheduled to speak before the Texas Bankers Association 138th Annual Convention at 10 am ET.

At 11 am ET, the Treasury Department is scheduled to announce the details of this month’s auctions of two-year, five-year and seven-year notes.

Stocks In Focus

Shares of Take-Two Interactive (TTWO) are moving sharply higher in pre-market trading after the video game company reported fiscal fourth quarter results that exceeded analyst estimates.

Retailer Bath & Body Works (BBWI) is also seeing significant pre-market strength after reporting better than expected first quarter results and raising its full-year guidance.

Meanwhile, shares of Cisco Systems (CSCO) may come under pressure after the networking giant reported fiscal third quarter earnings and revenues that beat expectations but a steep drop in orders.