Wall Street: US stock indices gain amid ongoing debt ceiling negotiations

Optimism around US debt ceiling negotiations helped all three key US stock indices lock in gains last week. For the week, the tech-heavy Nasdaq added 3.47% for its fourth straight week of gains, the S&P 500 added 1.61%, and the Dow Jones gained 0.38%.

Hastened by a potential collision course with the X-date in June, the US debt ceiling negotiations continue this week and will remain the focus for US equity markets.

While House Speaker McCarthy sounded optimistic that a deal could be reached in the coming days, he also stressed that the two sides are yet to agree to anything.

Meanwhile, US yields gained for a seventh consecutive session, helped by hawkish Fed Speak from Minneapolis Fed President and FOMC voter Neel Kashkari and resident Fed hawk James Bullard who said he expects two more hikes this year to quell inflation.

The June Fed meeting is 22% priced for a 25bp hike.

Aside from watching for US debt ceiling headlines, US equity indices will be looking for inspiration from the release of flash PMIs for May tonight across the Euro Area, the UK, and the US. As well as earnings from Nvidia, all eyes will be on the Core PCE Price Index on Friday, the Fed’s preferred measure of inflation,

S&P 500 technical analysis

Last week, the S&P 500 broke above-range highs 4200/10 area before the rally faltered into the weekend. If the S&P 500 can hold above near-term support at 4170/60 and then push above last week’s 4227.25 high, it will put the August 4327 high on the market’s radar.

Aware that should the S&P 500 lose the near-term support at 4170/60ish, it would warn that last week’s rally was a false break higher and that a deeper decline initially to 4070/60 is underway.

S&P 500 daily chart

Nasdaq technical analysis

After a stunning rally into the end of Q1 2023, the Nasdaq spent the next five weeks consolidating its gains within a 12,800 - 13,500 range.

It was noted in early May that “a sustained break above resistance at 13,350/70 would likely set up a retest of the August 13,740 high” - a level that was reached late last week.

With the market now overbought and based on expectations of a few more twists and turns before a debt ceiling agreement is reached, we would not be chasing the rally in the Nasdaq at this point. Instead, we would prefer to wait for better levels to buy.

Nasdaq daily chart

Dow Jones technical analysis

In contrast to the Nasdaq, the Dow Jones has been content to remain out of the spotlight during May.

If the Dow Jones could take out the recent 34,257 high and the 34,342 year-to-date high, it would re-energise the upside and open a test of the 34,712 high from December 2022 with scope to the 35,492 high from April 2022.

Until then, allow for a deeper decline to unfold towards support at 32,800, coming from the 200-day moving average with scope to year-to-date lows at 31,429.

Dow Jones daily chart

1. TradingView: the figures stated are as of April 23, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.