What to know this week

Debt ceiling debates, higher retail earnings and minutes from the Federal Reserve’s latest meeting await investors in the upcoming week.

House Speaker Kevin McCarthy (R-Calif.) said Saturday debates on the debt ceiling would not resume until President Biden returns from a trip to Japan for the G-7 meeting. Before leaving the G-7 on Sunday, Biden called the GOP’s debt-ceiling stance “unacceptable” and said “it’s time for the other side to move away from their extreme positions.” That’s Treasury Secretary Janet Yellen’s June 1 “ex-date” looms.

On Friday, the two sides suspended talks, raising doubts about the likelihood of a deal and sending markets lower.

All three major indexes still ended the week with gains, however, especially the Nasdaq, which rose more than 3%.

The Nasdaq and S&P 500 had their best week since March and their highest weekly finish since August 2022. Year to date, the Nasdaq is up more than 20% and the S&P 500 is up more than 9%; The Dow Jones industrial average barely sticks to annual gains.

Stocks were encouraged last week after the retail sector’s earnings struck a cautious tone on consumer spending for the year, but warnings of a full recession have yet to sound.

In the coming week, results from Dollar General ( DG ), Costco ( COST ), and BJ’s ( BJ ) will provide additional insights into consumer health. Walmart’s ( WMT ) results hinted at benefits for some retailers as wealthier consumers trade up to save money as inflation puts pressure on household budgets.

“At Walmart, at Target, at TJX, we’ve seen transactions on a rosy positive year, which suggests some trade-off on the value side of the equation as some key consumers make different choices,” Bernstein retail analyst Aneesha Sherman said Friday on Yahoo Finance live. “Some of the new data shows that it wasn’t there last year. So in terms of value retail, I think that’s a positive.”

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On the tech front, Nvidia ( NVDA ), which has seen its shares up more than 100% this year, is expected to report earnings on Wednesday.

As investors prepare for the end of the central bank’s most aggressive rate hike campaign since the early 80s, economic data leads investors to look for further clues on the central bank’s path forward.

On Thursday, a second estimate of first-quarter GDP will be released, looking at growth in the first quarter and the central bank’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, another check for Q1.

Economists expect “core” PCE — which strips out the more volatile costs of food and energy — rose 4.9% on an annual basis in the first quarter, unchanged from the first reading; “Core” PCE is expected to have risen 0.3% in April, unchanged from March.

But the debt ceiling remains the biggest factor for investors until a solution is reached in the ongoing negotiations.

Traditionally, as markets approach the “X-date” — or the date the US defaults on its obligations — the potential for a default weighs on markets in the two weeks leading up to this date.

U.S. President Joe Biden and Indonesian President Joko Widodo attend the Global Infrastructure and Investment Partnership event during the G7 Summit at the Grand Prince Hotel in Hiroshima, Japan on May 20, 2023. REUTERS/Jonathan Ernst

“If the X-date passes without a formal default, Q2’s decline is 5% to 3750, but will prove temporary,” UBS’s global economics and strategy team wrote in a note to clients on Friday.

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“A 1-week non-coupon period could trigger a 20% drop in stocks towards 3,400, and hold them at low levels through Q3 before recovering somewhat towards 3,800 by the end of the year. A highly unlikely scenario. Not only would a 1-month non-coupon cause an immediate 30% drop in stocks. , it will also see a very weak recovery.”

The S&P 500 closed Friday at 4,191.

As earnings season wraps up this week, debt ceiling debates will also loom large in investor conversation.

Entering Friday, the S&P 500 had returned 94%. On average, according to the Evercore ISI, companies are beating estimates by 6.5% while noting revenue declines in the second quarter.

However, stocks have rallied since the start of the first-quarter earnings season and the much-discussed recession has yet to hit the markets.

“As we think about the timing of the recession, the consumer remains key,” Julian Emanuel, who leads equity and portfolio strategy at Evercore ISI, wrote in a note to clients on Friday.

“A resilient consumer was largely the theme in 1Q results, although banks and retailers booked into the earnings season did not indicate some decline in the quarter. The pace of decline could put renewed pressure on valuations in line with historical correction trends.”

Weekly calendar

Monday

Economic Data: No significant economic data is set for release.

Revenue: Ryanair (RYAAY), Zoom (ZM)

tuesday

Economic Data: S&P Global US manufacturing PMI, May, preliminary reading (50.0 expected, 50.2 previously); S&P Global US Services PMI, May, preliminary reading (53.6 previously); New home sales, April (660,000 annual rate expected, 683,000 previously); New home sales, month-over-month, April (-3.4% expected, +9.6% previously);

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Revenue: AutoZone(AZO), BJ’s Wholesale Club (BJ), Dick’s Sporting Goods (DKS), Intuit (INTU), Lowe’s (L), Willams & Sonoma (WSM), Palo Alto Networks (PANW), Toll Brothers (TOL), Urban Outfitters (URBN)

Wednesday

Economic Data: MBA mortgage applications (-5.7% previously); FOMC Minutes

Revenue: Abercrombie & Fitch (ANF), BMO (BMO), elf Beauty (ELF), Kohl’s (KSS), Nvidia (NVDA), Petco (WOOF), Red Robin (RRGB), snowflake (Snow)

Thursday

Economic Data: Initial jobless claims (250,000 expected, 242,000 prior); First quarter GDP, second estimate (+1.1% annual rate expected, +1.1% previously)

Revenue: Autodesk ( ADSK ), Best Buy ( BBY ), Burlington ( BURL ), Build-A-Bear ( BLDR ), Costco ( COST ), Deckers Outdoor ( DECK ), Dollar Tree ( DLTR ), Gabe ( GPS ), Marvell ( MRVL ) ), Medtronic (MDT), Ralph Lauren (RL), RH (RH), Ulta Beauty (ULTA), TD Bank (TD), Workday (WDAY)

Friday

Economic data: Personal income, month-on-month, April (+0.4% expected, +0.3% previously); Personal spending, month-on-month, April (+0.4% expected, 0% previously); PCE Deflator, Month Over, April (+0.3% Expected, + 0.1% Prior); PCE Deflator, Year-over-Year, April (+4.6% expected, 4.6% previously); University of Michigan consumer sentiment, May, final reading (58.0 expected, 57.7 previously)

revenue: big places (big)

Josh is a Yahoo Finance reporter.

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