S&P 500 ends flat; tech up as Nvidia touches $1 trln mkt cap

S&P 500 ENDS FLAT; TECH UP AS NVIDIA TOUCHES $1 TRLN MKT CAP (1610 EDT/2010 GMT)

The S&P 500 SPX ended flat on Tuesday but technology shares gained as Nvidia NVDA became the latest company to hit $1 trillion in market capitalization during the session.

Boosting the market earlier was news that President Joe Biden and Republican House Speaker Kevin McCarthy on Sunday signed off on an agreement to temporarily suspend the debt ceiling and cap some federal spending.

On Tuesday, some right-wing Republicans said they opposed the bipartisan deal. Congress has days to approve a package to avoid a U.S. default.

Nvidia shares ended the session up 3% - off its session highs - with its market cap at $991 billion. The company's stock has surged since last week when the chipmaker late Wednesday reported its quarterly results and gave an upbeat forecast.

Consumer staples S5CONS suffered the biggest decline among the major S&P 500 sectors. That partly offset the gains in tech S5INFT and discretionary S5COND shares.

Here is the closing market snapshot:

(Caroline Valetkevitch)

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HOTDOG HANGOVER: MEMORIAL DAY WEEKEND AIR TRAVEL JUMPS NEARLY 11% (1340 EDT/1740 GMT)

The American consumer on Tuesday is recovering from a cookout coma, having kicked off the summer of 2023 in style.

Analysts have been going on about "experience demand," or the ongoing resurgence of dollars being spent on travel, eating out, and interfacing with friends and family (and service providers) now that the global pandemic is largely in the rear view mirror.

Perhaps the most up-to-the-minute barometer of "experience demand" comes courtesy of the Transportation Safety Administration (TSA) in the form of its daily passenger throughput data.

From Friday May 26 through Monday May 29, the total number of domestic air travelers to take off their shoes, empty their pockets, and shuffle through x-ray booths topped out at 9,786,247.

That's a robust 10.9% stronger than the same four days in 2022, and 0.5% more than Memorial Day weekend 2019, before the word 'COVID' had entered the world's lexicon.

The S&P 1500 Passenger Airlines index (.SPCOMAIR) is up 8.4% so far this year, a solid YTD performance.

Even so, the index has slightly underperformed the broader S&P 500's SPX 9.8% advance over the same time period.

This underperformance possibly reflects a suspicion that the "experience demand" party won't last forever.

But as Friday's red-hot PCE report proved once again - with consumer outlays jumping at 0.8%, double the expected 0.4% rate - never underestimate American consumers, whose refrigerators on Tuesday probably have more plastic containers of potato salad than they did on Friday afternoon.

(Stephen Culp)

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NASDAQ UP WITH TECH, S&P 500 FLAT BY AFTERNOON (1300 EDT/1700 GMT)

The S&P 500 SPX was trading near flat by afternoon Tuesday, while the Nasdaq was higher, led by gains in Nvidia NVDA and other technology shares S5INFT.

Energy shares SPN were declining, partly offsetting the gains in tech.

Boosting the market earlier was news that President Joe Biden and Republican House Speaker Kevin McCarthy on Sunday signed off on an agreement to temporarily suspend the debt ceiling and cap some federal spending.

Congress has days to approve a package to avoid a U.S. default.

Nvidia and other tech shares were extending gains from last week when the chipmaker reported its quarterly results and gave an upbeat forecast.

Here is the afternoon market snapshot:

(Caroline Valetkevitch)

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WILL DEBT CEILING DEAL HASTEN BANK DEPOSIT FLIGHT? (1205 EDT/1605 GMT)

An agreement to raise the U.S. debt ceiling has boosted risk sentiment on expectations that it will remove the risk of a default if it passes Congress, as is expected.

But Brian Reynolds, chief market strategist at Reynolds Strategy, warns that another consequence of the deal may be that investors that had held off on transferring bank deposits to money funds on concerns about a default may now make the move, and this will have negative consequences for the economy.

“This is the most sustained deposit decline in at least 50 years, and the debt ceiling agreement may make it worse,” Reynolds said in a report. “As money market funds now are largely limited to investing in T-Bills and Fed repo, the shift away from deposits means less lending for consumers and businesses.”

Investors have been pulling bank deposits on concerns about the resilience of the regional banking system after Silicon Valley Bank collapsed in mid-March. At the same time, they are seeking higher returns than many banks are offering on deposits.

Reynolds concludes that although the debt ceiling agreement is a near-term positive for stocks, “the bank deposit issue would still make us want to be a better seller of the ensuing rally.”

(Karen Brettell)

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COOLER THAN SCORCHING: CONSUMER CONFIDENCE, CASE SHILLER (1100 EDT/1500 GMT)

Market participants were in the mood for a glass of something cool on Tuesday, after the PCE heatwave on Friday - along with a possible debt ceiling deal, swung the pendulum in favor of yet another Fed rate hike next month.

Tuesday's data, while not exactly cool, was at least a bit less scorching.

The mood of the American consumer dipped a bit in May, but not by as much as economists predicted.

The Conference Board's Consumer Confidence index (USCONC=ECI) shed 1.4 points from an upwardly revised April number to deliver a print of 102.3, 3.3 points to the north of consensus.

Beneath the headline, the "current conditions" component inched 0.3 point lower, while "expectations" cooled by a negligible 0.2 point.

But assessment of business conditions ticked a bit higher.

"Consumer confidence declined in May as consumers' view of current conditions became somewhat less upbeat while their expectations remained gloomy," writes Ataman Ozyildirim, The Conference Board's senior director of economics.

The gap between current conditions and expectations remains wider than normal, a phenomenon recession watchers have noted often acts as a harbinger to economic contraction:

But surveys don't always reflect behavior.

Friday's PCE report showed consumer outlays surged at twice the rate expected, even as the saving rate - a gauge often associated with consumer expectations - dropped 40 basis points to 4.1% of disposable income.

Add to that mix the soaring revolving credit outstanding - more than $1.2 trillion at last glance - and we have a portrait of an American consumer that's growing more worried about the future, but saving less and charging more.

That's a state of affairs that can't go on forever:

Pivoting over to the housing market, home prices are finally cooling down, having been on fire since the global pandemic sent buyers stampeding for the suburbs.

The year-on-year S&P Global Case Shiller 20-city composite (USSHPQ=ECI) landed at -1.1% in March, marking the index's first annual decline in nearly 11 years, though not quite as steep as the 1.6% decline analysts expected.

On a monthly basis, the composite showed a 0.5% gain while consensus saw it moving sideways, unchanged.

The sector has been caught in multiple crosswinds of late, in the form of rising mortgage rates, low inventories, solid housing starts/new home sales data and brightening home builder sentiment.

So have U.S. home prices stabilized?

"The challenges posed by current mortgage rates and the continuing possibility of economic weakness are likely to remain a headwind for housing prices for at least the next several months," says Craig Lazzara, managing director at S&P Global.

City-by-city, 12 of the 20 cities in the composite showed home prices are down from March 2022, with San Francisco and Seattle down by double digits, 12.4% an 11.2%, respectively.

Miami and Tampa enjoyed the largest year-on-year gains.

Here's the 20-city composite mapped against demand for loans to purchase homes, thoughtfully provided by the Mortgage Bankers Association.

It should be noted that applications for purchase mortgages are currently down about 29.4% from a year ago:

(Stephen Culp)

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A DEAL, MAYBE, BUT WHAT ABOUT STOCKS? (1022 EDT/1422 GMT)

While a bipartisan deal to raise the $31.4 trillion U.S. debt ceiling awaits its first test in Congress on Tuesday, Sam Stovall, chief investment strategist at CFRA Research is looking into what might happen to stocks next.

Now Stovall points out that "the extreme fringes of both parties" need to vote to support agreement. Ultimately he believes it will be approved before the revised "drop dead" date of June 5 when the United States would run out of money to pay its bills.

But even as Stovall wonders which stocks will benefit from the lifting of the dark cloud that has caused much anxious discussion among investors in recent weeks and months, he says it's not a given the market will have rally from here.

To be sure, the strategist notes that "in reaction to the aroma of an agreement, the S&P 1500 jumped 1.3% on Friday," with upside in all sizes and styles, 8 out of 11 sectors and growth-oriented communication services, consumer discretionary, and information technology groups leading the way.

But, "the broad-based single-day price advance did not undo the damage done earlier in the week" with 27% of sub-industries ending the week above 10-week and 40-week moving averages versus 41% for the week ended May 19, said Stovall.

"This dwindling participation rate might be signaling that tough times lay ahead," according to the strategist even as he points to an S&P 500, which is ~2% away from a 20% recovery from it Oct. 12, 2022, low, which would indicate the start of a new bull market.

It could be due to the higher-than-expected readings for consumer spending, durable orders, Q1 GDP, and personal consumption expenditures (PCE) last week as stickier inflation may point to a Federal Reserve that's not done with rate hikes.

So "while there might be “no swoon in June”, the odds don’t favor a solid performance, either," says Stovall.

(Sinéad Carew)

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U.S. STOCK INDEX FUTURES GAIN ON TENTATIVE DEBT LIMIT DEAL (0905 EDT/1305 GMT)

U.S. stock index futures were higher early on Tuesday after President Joe Biden and Republican House Speaker Kevin McCarthy on Sunday signed off on an agreement to temporarily suspend the debt ceiling.

Nasdaq futures led the gains, with the market extending last week's late rally tied in part to a rally in chip stocks and a strong forecast from Nvidia NVDA

A House committee is set to meet later Tuesday to discuss the deal, which also includes capping some federal spending. Congress has days to approve a package to avoid a U.S. default.

S&P 500 e-minis ES1! were up about 0.6% while Nasdaq 100 e-minis NQ1! were up more than 1%, extending last week's strong gains.

Here is the premarket snapshot:

(Caroline Valetkevitch)

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