Wall Street closed higher on Monday following progress in U.S. debt ceiling negotiations. The three major stock indexes ended in positive territory. However, market participants remained highly concerned regarding a near-term recession in the U.S. economy. Weak economic data dented investors’ sentiment.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) was up 0.1% to close at 33,348.60. Notably, 19 components of the 30-stock index ended in positive territory and 11 in negative zone. The blue-chip index ended a five-day losing streak.

The tech-heavy Nasdaq Composite finished at 12,365.21, rising 0.7% due to strong performance of large-cap technology stocks. The biggest gainer of the tech-laden index was Atlassian Corp. (TEAM Quick QuoteTEAM - Free Report) climbing 7.7%. Atlassian carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The S&P 500 gained 0.3% to end at 4,136.28. Seven out of 11 broad sectors of the benchmark index closed in positive territory while four ended in negative zone. The Materials Select Sector SPDR (XLB) advanced 0.9% while the Utilities Select Sector SPDR (XLU) tumbled 1.3%.

The fear-gauge CBOE Volatility Index (VIX) was up 0.5% to 17.12. A total of 9.06 billion shares were traded on Monday, lower than the last 20-session average of 11.1 billion. Advancers outnumbered decliners on the NYSE by a 2.1-to-1 ratio. On Nasdaq, a 1.85-to-1 ratio favored advancing issues.

Progress in Debt Ceiling Negotiations

President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy are set to initiate a crucial debt ceiling talk on Tuesday. Just two weeks left before the U.S. government could run short of money to pay its bills.
President Biden is very optimistic about reaching a Congressional agreement. “I really think there’s a desire on their part, as well as ours, to reach an agreement, and I think we’ll be able to do it,” Biden told reporters Sunday.

Last week, Treasury Secretary Janet Yellen warned that the government could fail to meet its obligations unless a Congressional agreement is reached by Jun 1. However, in an interview with the Wall Street Journal, she said “I’m hopeful. I think the negotiations are very active. I’m told they have found some areas of agreement.”

Weak Consumer Sentiment

On May 12, the University of Michigan reported that the U.S. consumer sentiment fell to a six-month low in its preliminary reading for May. The metric fell from April’s final reading of 63.5 to 57.7, marking its lowest since November 2022. The consensus estimate was 63.

The present situation sub-index, which measures the consumer’s thinking about their current financial situation, dropped to 64.5 in May from 68.2 in April. The expectation sub-index, which measures consumer’s expectation for next six month, declined to 53.4 in May from 60.5 in April.

Consumer’s expectations for near-term inflation declined marginally in May to 4.5% after climbing 4.6% in April from 3.6% in March. However, inflation expectations over the next five years rose to 3.2% from 3% in April, reflecting its highest reading since 2011. The report said that the “Consumers’ worries about the economy escalated in May alongside the proliferation of negative news about the economy, including the debt crisis standoff.”

A significant drop in consumer sentiment is very bad for the U.S. economy. Weak sentiment may result in a contraction in consumer spending going forward. However, consumer spending is the biggest driver of the U.S. economy constituting more than 2/3 of the GDP. Low consumer spending may lead to a recession.