Wall Street Rebounds Despite Debt Ceiling Uncertainty and Rising Yields

Global stocks closed out the week on a subdued tone, influenced by the temporary pause in U.S. debt ceiling negotiations. This development cast a shadow of doubt over the prospects of an imminent agreement to avert a potential default. And yet, equities had displayed resilience in the preceding two sessions, bolstered by mounting confidence in the likelihood of reaching a resolution to raise the $31.4 trillion debt limit.

The benchmark S&P 500 index eventually gained 1.65% week-over-week (+9.18% year-to-date), while the Nasdaq Composite witnessed a more substantial surge of 3.04% (+20.94% YTD), boosted by tech giants’ stocks. The Dow Jones Industrial Average lagged behind, edging up 0.38% (+0.84% YTD).

In Europe, the MSCI EMU was up 1.27% for the week (+13.50% YTD) while the FTSE 100 treaded water (+0.03% WTD, +4.09% YTD)).

In Asia, Japan’s Nikkei 225 index jumped 4.83%, extending its winning streak to six weeks and closing above 30,000 for the first time in 20 months. Last week, we wrote that Japan’s stock market looked cheapest against book value. Investors have heard us! It’s worth noting that the premier index of Japanese stocks is keeping pace with the Nasdaq Composite with a YTD performance of 18.06%. The positive sentiment surrounding Japan was further bolstered by a stellar first-quarter earnings season, which exceeded expectations. Additionally, the release of producer inflation data revealed a milder-than-anticipated rise, indicating less pressure on the Bank of Japan to implement policy-tightening measures throughout the year.

By contrast, the Shanghai Composite Index struggled to stay above the flatline, with a modest gain of 0.34% (+6.29% YTD). Optimism about China's economic recovery is fading. The prevailing sentiment indicates a more cautious outlook among investors regarding China's growth prospects.

2023’s 3 Best Performing Sectors       

There is no question that communication services, information technology, and consumer discretionary have been the top-performing sectors so far in 2023, up 30.77%, 27.45%, and 17.93% respectively. Once again, these are also the best performers over the week. The tech sector jumped 4.19%, supported by chipmakers’ stocks. Nvidia (NVDA), the U.S. chip behemoth, gained 10.32% for the week, bringing its year-to-date performance to 139.61%! The tech giant is capitalizing on the burgeoning demand for artificial intelligence (AI)-related chips. Netflix (NFLX, up 7.49%), Meta Platforms (META, up 5.06%), and Alphabet (GOOG, up 4.52%) pushed the communication services sector higher (+3.06%). The consumer discretionary sector rose 2.63%, boosted by Tesla (TSLA, up 7.24%) and Amazon (AMZN, up 5.43%).

On the flip side, the main defensive sectors finished the week in the red. Utilities lost 4.36% (down 6.79% YTD, second worst performer among the S&P sector indexes in 2023) amid rising yields. The U.S. 10-year Treasury yield rose to its highest level since mid-March, close to 3.7%. The consumer staples sector was down 1.68% (up 1.42% YTD) while the healthcare sector slid 0.67% (down 3.60% YTD). Lastly, Real Estate Investment Trusts recorded their third negative week in a row (down 2.40%), falling back into negative territory for the year (-2.37%).