Dow trims losses in final hour of trade on Fed comments, economic data, earnings, and debt-ceiling optimism

What’s driving markets

Stocks trimmed some of their earlier losses in the final hour of trade Thursday as investors kept focusing on the debt-ceiling negotiations, while evaluating whether the Federal Reserve will need to keep interest rates higher for longer as inflation remains elevated.

Dallas Federal Reserve Bank President Lorie Logan said economic data don’t support Fed Chair Jerome Powell’s push to pause the central bank’s rate-hiking campaign starting from the June meeting. However, Fed Gov. Philip Jefferson and  St. Louis Fed President James Bullard said they awaiting further data before coming to a decision.

Fed-funds futures traders now see a 35.6% chance of another quarter-of-a-percentage-point rate hike by the Fed following Logan’s prepared remarks, according to CME FedWatch Tool.

“This week’s Fedspeak chorus is on point to remind markets that the Fed’s mandate is to restore price stability and it’s prepared to raise rates again to get the job done if inflation doesn’t cooperate,” Quincy Krosby, Chief Global Strategist for LPL Financial wrote in a Thursday note.

In U.S. economic data, the number of Americans who applied for unemployment benefits in mid-May sank to 242,000, aided by efforts in Massachusetts to counter a recent spike in fraudulent claims.

Sales of previously-owned homes in the U.S. fell 3.4% in April for the second month in a row, as buyers continue to deal with low levels of home listings and see-sawing mortgage rates. The median price for an existing home fell by 1.7% from last April to $388,800 this year. The drop is the largest since January 2012, when home prices fell 2%. 

Meanwhile, earnings from Walmart Inc.
WMT,
+1.06%
suggested the U.S. consumer’s strength might be waning. The retailer shared guidance that hinted at weakening discretionary spending by American consumers.

“Walmart is a bellwether for consumer spending and health, which is not in dire straits, but it is weakening,” said David Trainer, CEO of New Constructs. “Walmart’s earnings add to the idea that a recession is not fully here yet, but it is likely coming, albeit more slowly and less severe than most expect.”

However, Trainer pointed out that Walmart is not as important of a stock for the broader market as it used to be given the dominance of big tech. “The markets are on pins and needles trying to discern which companies will do well or poorly amid the increasingly difficult economic environment,” he said.

“The guidance from a lot of these retailers has been pretty mediocre in terms of the state of the consumer,” said Matt Maley, chief market strategist at Miller Tabak + Co. during a phone interview.

Read: ‘Doomsday machine’: Here’s what could happen if the debt ceiling is breached

On a more bullish note, investors grew more confident the White House would reach a deal with Congress to avoid a debt default. House Speaker Kevin McCarthy’s comments on Thursday morning that a deal could be reached as early as next week have helped to boost the Nasdaq while helping to keep stocks from seeing an even bigger selloff, Maley said.

Still, “I don’t think either equity traders nor bond traders are expecting a default,” Maley added.

U.S. stocks have been trading in a tight range in recent months, with the S&P 500 vacillating within a range of just 65 points — between 4,100 and 4,165 — over the past 10 sessions.

Companies in focus

• Walmart Inc. 
  WMT,
  +1.06%
  rose 1.1% on Thursday, after the discount retail giant reported fiscal first-quarter results beat expectations and raised its full-year profit outlook, but provided a second-quarter earnings view that was below Wall Street forecasts.

• Micron Technology Inc. shares
  MU,
  +3.98%
  climbed 4.2% as Bloomberg News reported it is expected to get about $1.5 billion in financial incentives from the Japanese government to help build advanced memory chips.

• PacWest Bancorp shares
  PACW,
  +2.34%
  rose 5.7%, extending Wednesday’s 22% surge on optimism around a debt ceiling deal and signs of stabilization in regional banks. 

• Cisco Systems Inc. shares
  CSCO,
  +0.28%
  gained 0.3% after the networking giant beat expectations for quarterly profit and sales in a report, but executives did not increase their top target for annual revenue and revealed that orders declined again.

—Jamie Chisholm contributed to this article