Debt ceiling deliberations, more retail earnings, and the minutes from the Federal Reserve's latest meeting await investors as highlights in the week ahead.
House Speaker Kevin McCarthy (R-Calif.) said Saturday discussions over the debt ceiling wouldn't resume until President Biden returns from his trip to Japan for a G-7 meeting. On Sunday before departing the G-7, Biden called the GOP's debt-ceiling stance "unacceptable," adding it was "time for the other side to move from their extreme positions." This as Treasury Secretary Janet Yellen's June 1 "X-date" looms.
On Friday, the two parties put talks on pause, raising doubts about the near-term potential for a deal and sending markets lower.
All three major indexes still finished the week with gains, however, notably the Nasdaq, which rose more than 3%.
The Nasdaq and S&P 500 had their best week since March and their highest weekly close since August 2022. Year to date, the Nasdaq is up more than 20%, while the S&P 500 has risen more than 9%; the Dow Jones Industrial Average is just barely clinging to gains for the year.
Stocks were encouraged last week after earnings from the retail sector struck a cautious tone on consumer spending for the year, but didn't sound alarms on a full-on recession quite yet.
In the week ahead, results from Dollar General (DG), Costco (COST), and BJ's (BJ) will offer further insights on the health of the consumer. Walmart's results (WMT) hinted at the benefits to some retailers from wealthier consumers trading down to save money as inflation pressures household budgets.
"We've seen transactions at Walmart, at Target, at TJX, at Ross positive year over year, which suggests that there is some trade down coming into the value side of the equation as some of those mainstream consumers make different choices," Bernstein retail analyst Aneesha Sherman told Yahoo Finance Live on Friday. "And that's what some of the new data is showing that wasn't the case last year. So for value retail, I think it's a positive."
On the tech front, Nvidia (NVDA), which has seen its stock more than 100% this year, is expected to report earnings on Wednesday.
On the economic data front, investors will look for further hints on the Fed's path forward as investors prep for the end of the central bank's most aggressive rate hiking campaign since the early '80s.
On Thursday, the second estimate of first quarter GDP will offer a look at growth in the first quarter and another check on the central bank's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, for Q1.
Economists expect "core" PCE — which strips out the more volatile costs of food and energy — rose 4.9% on an annual basis in the first quarter, unchanged from the first reading; "core" PCE is expected to have risen 0.3% in April, a monthly increase unchanged from March.
But the debt ceiling will remain the biggest factor for investors until a resolution on the current negotiations can be reached.
Traditionally, markets have been more volatile as the "X-date" — or the date at which the US would default on its obligations — nears, with the possibility of default weighing on markets most in the two weeks before this date.
"If the X-date is crossed without a formal default, we see the drop in Q2 deepening a further 5% to 3750, but proving temporary," UBS's global economics and strategy team wrote in a note to clients on Friday.
"A 1-week period of no coupon payment and default would trigger up to a 20% drop in stocks towards 3,400, and keep them suppressed at those low levels through Q3 before making a partial recovery towards 3.800 by year end. The very unlikely scenario of a month long non payment of coupon would not only cause an immediate drop of up to 30% in stocks, it would also see a very weak recovery."
The S&P 500 closed at 4,191 on Friday.
Debt ceiling discussions will also take a bigger place in the investor conversation going forward as this week wraps up earnings season.
Entering Friday, 94% of the S&P 500 had reported earnings. On average, companies have been beating estimates by 6.5%, per Evercore ISI, while reporting an earnings decline for the second straight quarter.
Still, stocks are up since the start of the first quarter earning season and the much discussed looming recession hasn't impacted markets yet.
“In thinking about the timing of a Recession, the Consumer remains key,” Julian Emmanuel, who leads Evercore ISI's equity and portfolio strategy, wrote in a note to clients on Friday.
"A resilient Consumer was largely the theme in 1Q results, though Banks and Retailers bookending Earnings Season did note some deceleration later in the quarter. Waning momentum could put renewed pressure on estimates in line with historical revision trends."
Weekly Calendar
Monday
Economic data: No notable economic data set for release.
Earnings: Ryanair (RYAAY), Zoom (ZM)
Tuesday
Economic data: S&P Global US manufacturing PMI, May, preliminary reading (50.0 expected, 50.2 previously); S&P Global US Services PMI, May, preliminary reading (53.6 previously); New home sales, April (660,000 annualized rate expected, 683,000 previously); New home sales, month-over-month, April (-3.4% expected, +9.6% previously);
Earnings: Autozone(AZO), BJ's Wholesale Club (BJ), Dick's Sporting Goods (DKS), Intuit (INTU), Lowe's (L), Willams & Sonoma (WSM), Palo Alto Networks (PANW), Toll Brothers (TOL), Urban Outfitters (URBN)
Wednesday
Economic data: MBA Mortgage Applications (-5.7% previously); FOMC minutes
Earnings: Abercrombie & Fitch (ANF), BMO (BMO), e.l.f. Beauty (ELF), Kohl's (KSS), Nvidia (NVDA), Petco (WOOF), Red Robin (RRGB), Snowflake (SNOW)
Thursday
Economic data: Initial jobless claims (250,000 expected, 242,000 prior); First quarter GDP, second estimate (+1.1% annualized rate expected, +1.1% previously)
Earnings: Autodesk (ADSK), Best Buy (BBY), Burlington (BURL), Build-A-Bear (BLDR), Costco (COST), Deckers Outdoor (DECK), Dollar Tree (DLTR), Gap (GPS), Marvell (MRVL), Medtronic (MDT), Ralph Lauren (RL), RH (RH), Ulta Beauty (ULTA), TD Bank (TD), Workday (WDAY)
Friday
Economic data: Personal Income, month-over-month, April (+0.4% expected, +0.3% previously); Personal Spending, month-over-month, April (+0.4% expected, 0% previously); PCE Deflator, month-over-month, April (+0.3% expected,+ 0.1% previously); PCE Deflator, year-over-year, April (+4.6% expected, 4.6% previously); University of Michigan consumer sentiment, May, final reading (58.0 expected, 57.7 previously)
Earnings: Big Lots (BIG)
Josh is a reporter for Yahoo Finance.
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