NEW YORK — Wall Street rose Monday ahead of reports that will show how much a slowing economy is hurting what has so far prevented a recession: solid spending by US households.
The S&P 500 rose 12.20, or 0.3%, to 4,136.28, the latest rise in a week-long listless run by the market. The Dow Jones Industrial Average was up 47.98, or 0.1%, to 33,348.60 and the Nasdaq Composite was up 80.47, or 0.7%, to 12,365.21.
Some of the stronger moves came from companies announcing acquisitions of rivals, including a 9.1% decline in energy company Oneok after it announced it would buy Magellan Midstream Partners. Magellan is up 13%. However, the broader market remained relatively calm as several concerns continue to weigh on Wall Street.
Chief among these is fear of a recession later this year, largely due to high interest rates aimed at bringing down inflation. But there are also mounting concerns over cracks in the US banking system and the US government’s move toward a possible default as early as June 1, which economists say could be catastrophic.
So far, a robust labor market has helped US households sustain spending despite the strains. This in turn provided strong support for the economy. On Tuesday, the government will show how much sales have risen at retailers across the country over the past month.
Several major retailers will also show how much profit they made individually through the first three months of the year, including Home Depot on Tuesday, Target on Wednesday and Walmart on Thursday.
They’re among the few remaining companies that haven’t announced their earnings for the start of the year. Most companies in the S&P 500 have beaten expectations so far, despite setting a particularly low bar for entry.
S&P 500 companies remain on track to report a 2.5% year-over-year decline in earnings per share. According to FactSet, that would be the second consecutive quarter that they’ve seen an earnings decline.
“These are backward-looking numbers, so they’re something we view with some value, but we’re more interested in what they say about the future,” said Megan Horneman, chief investment officer at Verdence Capital Advisors.
Because of this, Horneman said she’s heard many CEOs speak out about the pressure on profitability and concerns about a slowing economy.
“We still think a recession is likely at some point this year,” she said, referring to Monday’s latest disheartening manufacturing report. A survey of manufacturers in the state of New York collapsed much more than economists had expected.
“It was pretty grim, to say the least,” Horneman said.
As earnings reports slip out of the limelight, US government debt ceiling negotiations surge. The federal government risks its first default if Congress doesn’t raise the borrowing limit on federal loans.
Most of Wall Street expects Democrats and Republicans to reach an agreement simply because the alternative would be so disastrous for both sides. US Treasuries form the bedrock of the global financial system as they are considered the safest investment on the planet.
However, there is concern that politicians may not feel the great urgency to reach an agreement until financial markets are severely shaken to convince them of the importance.
“Debt default may not be the most likely scenario, but any prolonged debate or unexpected development could result in higher volatility,” said Chris Larkin, Morgan Stanley’s managing director of trading and investments at E-Trade.
In the bond market, government bond yields rose after briefly falling during the morning session.
The yield on the 10-year government bond rose to 3.49% from 3.46% late Friday. It helps set interest rates on mortgages and other loans. The 2-year Treasury yield, which is more in line with Fed expectations, held steady at 3.99%.
High interest rates have caused particular problems for some small and medium-sized banks. Customers are leaving to park their deposits in money market funds and other higher-yielding options. High interest rates are now reducing the value of investments banks made when interest rates were lower.
The pressure has already resulted in three high-profile bank failures since March, and Wall Street is scouting for more potential vulnerabilities.
Some recovered somewhat on Monday after falling sharply last week. PacWest Bancorp, for example, is up 17.6% after losing 21% last week.
In overseas markets, Japan’s Nikkei 225 gained 0.8% and is close to its highest level since the early 1990s. The rise came on the back of strong corporate earnings reports and signs that inflationary pressures may be easing.
Over the weekend, finance ministers from the Group of Seven advanced economies ended a meeting in Japan with a call for vigilance amid the many uncertainties facing the global economy.
However, they also said that despite the recent bankruptcies of several banks in the US and Europe, financial systems have proved resilient. There was no mention of the urgency of resolving the debt ceiling dispute between President Biden and Republicans.
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