Wall Street is feeling a little more optimistic that a deal will be struck to raise the US debt ceiling. Lawmakers on both sides, including President Biden and House Speaker Kevin McCarthy, have expressed confidence that they will be able to reach an agreement and avoid a potentially disastrous US debt default.

I'm a bit worried, however, as the bond market doesn't seem all that sold on a compromise at the Capitol. The one-month Treasury was still trading at over +5.4%, and the 1-year at 4.96%. In other words, the bond market doesn't seem all that certain about a resolution in Washington or that the Fed will be making many rate cuts during the next twelve months. There's no question that getting the debt ceiling threat out of the way will take a major worry off the table but bulls may still struggle to gain any substantial ground ahead of the Fed's next meeting in mid-June.

Comments by Fed officials in recent days have revealed what seems like a growing divide between those who are definitely ready to pause rate hikes and those that think the central bank still has more work to do in its battle against inflation. A couple of Fed officials are speaking today but investors are really more interested to hear from Fed Chair Jerome Powell on Friday who will be participating in a panel discussion about monetary policy and the economy.

While Powell isn't likely to reveal what the Fed intends to do in June, it could still provide some new insights into the central bank's thinking. New York Fed President John Williams and former Fed Chair Ben Bernanke will also participate.

Attentions today will turn back toward consumer spending and Q1 earnings with Walmart set to release results before the market opens. Target and TJX yesterday both topped Q1 expectations but warned of slowing sales growth. Those results followed disappointing guidance from Home Depot earlier this week. If Walmart similarly issues a bleak outlook it will add to the ongoing worries about overextended consumers and possible recession in the months ahead.

Investors are also anxious to see the Philadelphia Fed Index after New York's Empire State Manufacturing Index plunged deep into negative territory. The May read dropped to -31.8 from +10.8 in April. If the Philadelphia Index takes a similar nosedive, it could be viewed as another red flag that the economy is taking a sharp downturn.

Existing Home Sales are also due out today. On the earnings front, Walmart results will be joined by Alibaba, Applied Materials, and Ross Stores.

Nasdaq is Leading the Dow by the Widest Margin in 30 Years: The Nasdaq Composite is now leading the Dow Jones Industrial Average by 18.3%, its widest margin of outperformance since 1991 as of Tuesday’s close while the blue-chip gauge erases its year-to-date gain, according to Dow Jones Market Data. It has been extremely rare in the past 50 years for the tech-heavy index to exceed the Dow by such a wide margin. This is the first time since the Nasdaq’s launch in 1971 that the index has been up more than 17% year-to-date through May 16 during a stretch where the Dow was still stuck in the red for the year, according to Dow Jones Market Data. Interestingly, back in the early 1990s, nearly all of the current Nasdaq index leaders either hadn’t been founded yet or were still relatively small by market capitalization, as was the case for Apple Inc., which went public back in 1980. Source Market Watch

U.S. Depression Rates Reach New Highs: The percentage of U.S. adults who report having been diagnosed with depression at some point in their lifetime has reached 29.0%, nearly 10% higher than in 2015. The percentage of Americans who currently have or are being treated for depression has also increased, to 17.8%, up about seven points over the same period.Over one-third of women (36.7%) now report having been diagnosed with depression at some point in their lifetime, compared with 20.4% of men, and their rate has risen at nearly twice the rate of men since 2017. Those aged 18 to 29 (34.3%) and 30 to 44 (34.9%) have significantly greater depression diagnosis rates in their lifetime than those older than 44. Source Gallup

US Supply Chain Woes Shift and Persist in 2023: The US supply chain is healing from early pandemic shocks, but more than three years later, material shortages and hiring woes linger. Rates for trucking, ocean shipping and other transportation tumbled after U.S. consumers shifted spending from big-ticket items like furniture, BBQ grills and big-screen TVs to travel and other entertainment, offering a reprieve to beleaguered shippers. However, “there’s still a pretty big mess out there,” said Ryan Patel, senior fellow at Claremont Graduate University’s Drucker School of Management. The labor market remains tight, fueling costs. Elsewhere, machine parts shortages persist and cement has become difficult to find as automakers and other manufacturers catch up with demand and the U.S. ramps up infrastructure projects. “We’ve still got certain sectors that are up and some that are down, which was a feature of the pandemic,” said Dean Croke, principal analyst at DAT Freight & Analytics, a transportation data provider. That’s even true within sectors, Croke added, pointing to recent manufacturing data, which remained depressed even as segments like motor vehicles reported gains. Manufacturing accounts for the majority of U.S. truckload ton miles, he said. Source Reuters

Target Warns it Will Lose $500 Million to Retail Theft This Year: Target CEO Brian Cornell offered a sobering warning to investors during the company’s post earnings conference call on Wednesday. “The unfortunate fact is violent incidents are increasing at our stores and across the entire retail industry,” Cornell said. “Beyond safety concerns, worsening shrink rates are putting significant pressure on our financial results.” Then he offered a stunning number. “We expect that shrink will reduce our profitability by more than $0.5 billion compared with last year,” Cornell said, using the industry term for lost inventory. Cornell’s comments highlight a growing challenge across the retail sector. The issue popped up regularly in February, when retailers disclosed their results for the holiday quarter. Retailers from TJX Cos. (TJX) to Dollar General (DG) called out losses from theft, and in some cases it had a greater impact on profits than in the past. The National Retail Federation said shrink was nearly a $100 billion problem in 2021, the most recent year for which data are available. Source Barrons

Almost 90 Million American Adults Struggle to Make Ends Meet: More Americans struggle to meet expenses now than in the immediate aftermath of the Covid-19 pandemic, when millions lost their means of employment, a Census Bureau survey showed. About 38.5% of American adults — or 89.1 million people — faced difficulty in paying for usual home expenses between April 26 and May 8, according to the latest Household Pulse Survey. That’s up from 34.4% a year ago and 26.7% during the same period in 2021. The share of struggling households varies widely by geography. Residents in states with lower median incomes such as Louisiana and Mississippi are facing the largest budget problems. In 15 states, more than 4 in 10 adults live in households where it has been somewhat or very difficult to pay for usual household expenses in the last seven days. And in some metro areas, such as Los Angeles and Riverside, California, almost half of households are struggling. To combat these budget problems, many households are turning to credit cards for help. More than 25 million households say that they used credit cards or obtained a loan to meet spending needs. That’s up from 22.4 million a year earlier. Source Bloomberg

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