Closing Market Update: Higher on Debt Confidence

Growing confidence Congress will pass a debt ceiling bill and avert a potentially calamitous default sent U.S. stocks broadly higher Thursday, with the S&P 500^® (SPX) and Nasdaq Composite ($COMPX) indexes both ending at their highest levels since mid-August. Attention is now likely to shift to the release of employment data Friday that could influence the Federal Reserve's next interest rate moves.

Although the debt-ceiling bill was still with the Senate as of market close, investors appeared confident it would pass before June 5, when Treasury Secretary Janet Yellen has said the U.S. will run out of funds to pay its bills.

The deal "is expected to pass easily. The question is on timing," says Michael Townsend, managing director of legislative and regulatory affairs at Schwab, adding individual senators have a lot of power to slow things down.

"Most signs are pointing to a final vote sometime Friday," Mike says. "While the process could extend into the weekend, that looks less and less likely, as there are clearly enough votes to pass the bill—rendering filibusters and other delay tactics pointless—and senators really want to go home for the weekend."

"Once the Senate passes the bill," Mike adds, "the president will sign it into law and the debt ceiling will be off the table until mid-2025."

Here is where the major benchmarks ended:

• The S&P 500 Index was up 41.19 points (1.0%) at 4221.02; the Dow Jones industrial average (DJIA) was up 153.30 (0.5%) at 33,061.57; the Nasdaq Composite was up 165.70 (1.3%) at 13,100.98.
• The 10-year Treasury note yield (TNX) was down about 3 basis points at 3.603%.
• Cboe's Volatility Index (VIX) was down 2.25 at 15.69.

Oilfield services providers and other energy companies led sector gains, as crude oil futures rallied nearly 3% and pushed back above $70 barrel despite higher-than-expected U.S. inventories reported Thursday. Semiconductor makers and other tech companies continued their recent show of strength. The U.S. Dollar Index ($DXY) fell to its lowest level in more than a week amid ideas the Fed may soon "pause" its sharp rate hikes of the past year.

The following companies reported quarterly results over the past day or had large, news-driven stock price moves:

• C3.ai (AI) posted guidance for the current quarter that disappointed investors and overshadowed a smaller-than-expected loss for the previous quarter. Shares of the artificial intelligence company fell nearly 13%.
• Chewy (CHWY) posted quarterly earnings and revenue that topped Wall Street expectations. Shares of the pet supply retailer were up nearly 21%.
• Dollar General (DG) missed expectations on earnings and revenue and reduced its full-year outlook. Shares of the discount retailer fell nearly 20%.
• Domino's Pizza (DPZ) shares were upgraded by JPMorgan Chase, which says the company's shares are trading at a discount compared to what it charges for key products. Domino's shares rose about 2%.
• Macy's Inc. (M) fell short of revenue estimates for its most recent quarter and cut its full-year earnings and revenue guidance. However, its shares were up 1.3%.
• Microsoft (MSFT) agreed to spend potentially billions of dollars over multiple years on cloud-computing infrastructure from startup CoreWeave, CNBC reported. Microsoft shares rose about 1.2%.
• Salesforce (CRM) posted better-than-expected quarterly earnings but also higher costs, and the software company didn't raise its full-year revenue outlook. Its shares fell nearly 4.7%.
• Target (TGT) shares were downgraded by JPMorgan Chase, which cited concerns over declining market share and disinflation in the company's grocery segment. Shares of the retailer shook off early losses and ended roughly unchanged.

Among other companies, semiconductor maker Broadcom (AVGO) was expected to report quarterly results after Thursday's market close.

Assuming a debt ceiling deal is forged, Friday's May employment report from the Labor Department promises to heavily influence the market's tone at least through early June.

The report is expected to reveal a further slowdown in the job market, and surely will be a key consideration during the next meeting of the Federal Open Market Committee (FOMC), the central bank's policy-setting arm, scheduled for June 13–14.

Economists expect U.S. payroll growth to have slowed to 190,000 in May following a gain of 253,000 in April, based on a Briefing.com survey. That would represent a marked slowdown from the monthly average growth of 284,500 for the first four months of 2023 and the second-smallest monthly increase in jobs since January 2021, trailing only the 165,000 figure in March. The report is also expected to show a 0.3% monthly gain in average hourly earnings during May, versus 0.5% in April.

The Fed has raised its benchmark funds rate 10 times since March 2022 in an attempt to tamp down inflation that surged to four-decade highs last year and still remains above its long-term target rate of 2%.

A stronger-than-expected jobs report Friday could prompt the Fed to raise rates again, says Collin Martin, director of fixed income strategy at the Schwab Center for Financial Research. But he also notes recent signs that growth is slowing, which could also factor into the Fed's calculations.

"We think a pause in further rate hikes is likely," Collin says. "There are signs that tighter monetary policy is having the expected impact on the economy, and that should continue as time passes. The Fed may be better off taking a cautious approach and monitoring the incoming data rather than overtightening."

Late Thursday, investors saw a 76% probability of the Fed keeping rates unchanged at the June meeting, up from 48% a week ago, according to the CME FedWatch tool.