U.S. stock futures stay lower after retail sales, as debt ceiling talks loom

What’s driving markets

Investors’ eyes are on the U.S. government debt ceiling talks later Tuesday between President Joe Biden and House Speaker Kevin McCarthy. The White House says the meeting will start at 3 p.m. Eastern.

U.S. Treasury Secretary Janet Yellen on Monday repeated June 1 as the date when her department may be unable to pay all its bills in the absence of a debt-ceiling increase. McCarthy contradicted recent optimism about a deal by stating the two sides were still “far apart.”

Concerns about the impact on markets of a technical default by the U.S. has capped recent gains for stocks, which came after a better-than-expected first quarter earnings reporting season and inflation easing to a two-year low. Consequently, the S&P 500 index remains cemented within the 3,800 to 4,200 range it has inhabited for about six months.

Some analysts were skeptical of a deal occurring soon. “The negotiations will likely remain tight as Republicans ask for decent spending cuts to accept a debt ceiling relief, while Biden is not willing to compromise on spending into the election year,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Given the uncertainty, many traders are choosing to keep their powder dry. Wall Street on Monday recorded its lowest volume day of the year, according to Dow Jones Market Data.

Investors should indeed favor caution, argued Stephen Innes, managing partner at SPI Asset Management.

“Some investors think we are nearing a point where risk rewards could be more favorable, given that politicians historically have given in to the face of crisis. Although arguably, we could enter a very tricky period, and discussion could drag out. But again, one is playing the game of headline poker on either side of the bullish or bearish table, which keeps discretionary folks sidelined. Smart money doesn’t flip coins,” Innes wrote in a morning commentary.

Traders are also keeping an eye out for fresh information on the health of the U.S. consumer.

April retail sales increased 0.4%, buoyed by car sales and consumer online spending online. Sales were forecast to increase 0.8%, according to economists polled by the Wall Street Journal. Stripping out cars and gas, sales climbed 0.6%.

Earlier Tuesday, investors also got a look at consumers through the window of Home Depot
HD,
-1.72%
fiscal first quarter earnings.

Other U.S. economic updates set for release include industrial production and capacity utilization for April at 9:15 a.m. followed at 10 a.m. by March business inventories and May home builder confidence.

There’s also a flurry of Fed officials speaking, including Cleveland Fed President Loretta Mester at 8:15 a.m.; Richmond Fed President Tom Barkin at 10:30 a.m.; New York Fed President John Williams at 12:15 a.m.; and Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee on a panel starting at 7 p.m..

Companies in focus

• Western Alliance Bancorp.
  WAL,
  +2.86%
  rose nearly 3% as regional banks continued to find support from news that he Federal Deposit Insurance Corp. plans to replenish its coffers with an assessment that falls mainly on the very largest banks.

• Home Depot
  HD,
  -1.72%
  got the week’s retail results off to a bad start, its shares falling more than 2% in the premarket after providing poorly-received earnings and cutting its 2023 sales outlook. Shares in Lowe’s
  LOW,
  -1.97%
  dropped 2% in sympathy.