[New York Stock Market] "No Default" Biden and McCarthy Lead 1%+ Gains

The three major indices of the U.S. New York stock market closed higher on the 17th (local time), buoyed by consecutive remarks from President Joe Biden and House Speaker Kevin McCarthy assuring that there will be no default, spreading expectations of an agreement to raise the debt ceiling. Concerns stemming from regional banks also somewhat eased, confirming a rally in bank stocks.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 33,420.77, up 408.63 points (1.24%) from the previous session. The S&P 500, centered on large-cap stocks, rose 48.87 points (1.19%) to 4,158.77, and the tech-heavy Nasdaq index closed at 12,500.57, up 157.51 points (1.28%).

Among the S&P 500 sectors, nine out of eleven sectors excluding utilities and consumer discretionary recorded gains. In particular, financial and energy-related stocks rose more than 2%. The retail giant Target, which released earnings before the market opened, closed up 2.58%, exceeding Wall Street expectations. Electric vehicle company Tesla rose 4.41% after CEO Elon Musk dismissed resignation rumors at the shareholder meeting the previous afternoon and announced new product launches. Representative tech stocks such as Amazon (+1.85%), Microsoft (+0.95%), Google Alphabet (+1.11%), and Netflix (+1.86%) also rose together.

Regional bank stocks also surged. Western Alliance Bancorp jumped 13% after disclosing deposit growth, leading the rebound in regional bank stocks. PacWest Bancorp rose 21%, and Zions increased by more than 12%. The SPDR S&P Regional Banking ETF also showed gains of over 7%. Large banks such as JPMorgan Chase (+3.07%) and Wells Fargo (+5.39%) also rose. Additionally, VaxHealth surged more than 24% after winning a legal battle with Norwich Pharmaceuticals. On the other hand, WeWork fell nearly 25% following news of the resignation of its chairman and CEO.

[Image source=Reuters Yonhap News]

Investors closely watched discussions between the White House and the Republican Party regarding raising the debt ceiling. Although the second meeting between President Joe Biden and congressional leaders the previous day ended empty-handed, both sides showed strong negotiation intentions with the stance that ‘there will be no default,’ reviving risk appetite along with expectations of an agreement. Pimco stated, "We believe a deal or a broad agreement is imminent," adding, "As with all negotiations, there is a possibility of last-minute failure, but the destination is clear." Sam Stovall, Chief Investment Strategist at CFRA Research, evaluated that "news related to the debt ceiling is becoming increasingly optimistic."

President Biden, before departing for the G7 summit in Japan, said at a press conference, "I am confident that we can reach an agreement to raise the debt ceiling so that the United States does not default." This statement is interpreted as an effort to ease concerns by emphasizing the willingness to negotiate after the second meeting with congressional leaders the previous day failed to produce significant results, increasing fears of default. He emphasized about the previous meeting, "All the leaders present know that if we fail to pay our bills, it would be catastrophic for the U.S. economy and the American people," and "Everyone agreed that we will not fall into default." Currently, President Biden has shortened his overseas trip schedule to focus on debt ceiling negotiations.

Republican House Speaker Kevin McCarthy also appeared on CNBC's Squawk Box that morning, stating, "Ultimately, we believe there will be no default," and "We believe we have finally gotten the president to agree to negotiate." He emphasized, "The only thing I am certain of is that we now have a structure that allows us to find a way to reach a conclusion." Democratic House Majority Leader Hakeem Jeffries, in a separate interview with Squawk Box, said, "Yesterday was a very positive meeting," adding, "It was calm. The discussions were frank. I am optimistic that we can find a consensus within the next one to two weeks." The market expects a broad agreement as early as this weekend.

Both sides' aides are currently focusing discussions on finding consensus in areas such as recovering COVID-19 budget funds, streamlining energy project approval procedures, and setting government spending caps. However, given the tight deadline and persistent differences, a difficult path is expected until the final bill passes. The Democratic Party is reportedly preparing an emergency plan to immediately vote on a debt ceiling increase bill in the House of Representatives in case negotiations between President Biden and Speaker McCarthy ultimately fail.

The market is flooded with concerns that if the debt ceiling is not raised, a default could materialize as early as early June, impacting not only the U.S. but the global economy. Even if the worst-case scenario of default is avoided, the closer the X-day?when all cash is exhausted?the more inevitable a sharp stock market decline will be. The previous day, over 140 U.S. business CEOs urged the political sphere in an open letter to promptly raise the debt ceiling.

In the New York bond market, Treasury yields rose. The 10-year U.S. Treasury yield increased to around 3.57%. The 2-year Treasury yield, sensitive to monetary policy, rose to about 4.15%. The dollar index, which shows the value of the dollar against six major currencies, rose about 0.3% to around 102.8.

The U.S. housing starts for April, released that day, were recorded at 1.4 million units (annualized), up 2.2% from the previous month. This matched the expert forecast of 1.4 million units compiled by Dow Jones. New building permits, an indicator of future housing market trends, decreased 1.5% to 1.42 million units from the previous month.

International oil prices rose as risk appetite recovered. On the New York Mercantile Exchange, June delivery West Texas Intermediate (WTI) crude oil prices closed at $72.83 per barrel, up $1.97 (2.78%) from the previous session.

This content was produced with the assistance of AI translation services.