Wall Street Rebounds After Jobs Data and Senate’s Approval of Debt Ceiling Deal

Investment markets reacted positively after the late Thursday approval by the U.S. Senate of a comprehensive package encompassing the debt ceiling and budget cuts.

The compromise agreement, skillfully negotiated between President Biden and House Speaker Kevin McCarthy, has left both Republicans and Democrats somewhat dissatisfied with the final outcome. Nonetheless, the resolution attained after enduring weeks of arduous budget deliberations effectively puts on hold the precarious debt ceiling predicament, which posed a significant threat to the stability of the U.S. and global economies until 2025.

Sentiment also got a boost after the May jobs report. The U.S. added 339,000 payrolls, well above what economists were expecting. This development serves as the most recent testament to the continued strength of the labour market, successfully warding off the imminent risks of a recession. That said, cautionary signals have emerged within the U.S. economy, as evidenced by a rise in the unemployment rate to 3.7% in comparison to April's figure of 3.4%. Additionally, wage gains demonstrated a slower pace of growth in comparison to the previous month.

Market participants cheered the news. The Dow Jones Industrial Average gained 2.02% week-over-week. The S&P 500 added 1.83% and the tech-heavy Nasdaq Composite was up 2.04%. With U.S. stocks in rally mode, the CBOE Volatility Index (VIX) dropped well below 15 for the first time since early February 2020.

By contrast, European stock markets were muted. The DAX was up 0.42% while the CAC 40 lost 0.66%. The FTSE edged down 0.26%.

In Asia, the Nikkei 225 index notched its eighth straight week higher (+1.97%), topping a three-decade high. The Shanghai composite edged up 0.55%.

All 11 S&P sectors trade up in broad rally   

In a rare display of broad-based strength, the 11 S&P 500 sector indexes closed higher this week, for the second time in 2023.

The consumer discretionary sector took the lead, showcasing an impressive surge of 3.27%, with a notable contribution from Tesla stocks (TSLA) that soared by 10.77% over the course of the week. This remarkable performance can be attributed to the recent meeting between Elon Musk and China's foreign minister, Qin Gang. The interaction has generated significant investor enthusiasm, bolstering Tesla's market position. It is worth noting that Tesla's primary manufacturing facility in China has the capacity to produce approximately one million vehicles annually, and the company has unveiled its intentions to establish a battery factory in the region. Additionally, Tesla shares have garnered attention due to the prevailing excitement among investors regarding artificial intelligence. The influential investor Cathie Wood, closely followed for her market insights, has recently argued that the EV carmaker is also “one of the biggest AI opportunities.”

The real estate sector also fared well with a gain of 3.07%, snapping a four-week losing streak. Materials rebounded (+2.87%) after losing almost 6% over the last six weeks, as a report said China is mulling new measures to support the property market. The energy sector managed to finish in positive territory (+1.31%) though oil prices slid ahead of the OPEC+ June 4 meeting (WTI down 1.28%). That said, they are expected to rebound next week as Saudi Arabia’s energy ministry said Sunday that Riyadh will implement an additional voluntary one-month one million-barrel-per-day cut starting in July. Additionally, OPEC+ announced in a statement that it will limit combined oil production to 40.463 million barrels per day over January-December 2024.

Lastly, consumer staples (up 0.28%) and utilities (up 0.78%) were the worst performers of the week among S&P 500 sectors.