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Markets Trade Sideways on "Known Unknowns"

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Our pre-market trading session to start a new week on Wall Street showed some promise, but quickly descended to a flat day overall, pretty much across the board. The Dow slipped another -50 points on the day, -0.15%, while Nasdaq finished on the other side, +41 points, +0.32%. Rounding it out, the S&P 500 was as flat as a closing bell snapshot could provide, -0.002%, and the small-cap Russell 2000 came in -0.32% for the session.

Two “known unknowns” sit as an obstacle between market participants and a positive trading week: debt ceiling passage and increasing odds the Fed is considering another interest rate hike three weeks from tomorrow. On Capitol Hill, after passage of a debt ceiling hike compromise — which would allow the U.S. to pay its bills and not default — seemed to put pre-market traders in a good mood, it’s unclear whether extremists in Congress will be willing to take the compromise and send it through the rules committee.

In terms of interest rate hikes, economic reports where we see conditions improving all serve as indicators that the Fed has not yet done enough to curb inflation, even though everyone knows the full impact of past hikes — 500 basis points’ (bps) worth since March of last year — has yet to hit the tape. Case-Shiller home price numbers were down for March, which can be seen as good news, while Consumer Confidence for May outpaced expectations — 102.3 versus 99.0 — though down from an upwardly revised 103.7. These numbers may look a tad warm for the Fed; are they warm enough for the Fed to continue tightening interest rates?

The biggest report regarding possible Fed policy will be this Friday’s nonfarm payroll results and a new Household Survey, which together make up our Employment Situation. Expectations are currently for a slight dwindling in monthly jobs gains (to 188K in May from 253K in April) with the Unemployment Rate ticking up to 3.5%, which is still historically very strong. Should we see the bottom falling out in new positions filled, that may be reason enough for the Fed to pause; another quarter-million new jobs for the month, and that’s another indication of hotter-than-expected inflation, especially if wage gains continue to move notably higher.

Box (SQ - Free Report) has released Q1 earnings results after today’s close, beating expectations on both top and bottom lines. Earnings of 32 cents per share outperformed the Zacks consensus by 5 cents, while sales of $252 million outpaced the $249 million expected. Gross margins of 77.9% notably surpassed expectations, as well, and Q2 revenue guidance has ratcheted up to a range of $260-262 million. Shares are up +3.5% in after-hours trading.

Hewlett-Packard (HPQ - Free Report) and H-P Enterprises (HPE - Free Report) both put out mixed results — fiscal Q2 and Q4, respectively — by beating on their bottom lines while coming up short on the top. Both companies made sure to accentuate their place in the A.I. market — PCs may benefit from smaller A.I. players for H-P, while high-performance computing at HPE helped the company raise full-year earnings guidance. Both stocks are selling off slightly in late trading, likely on the top-line misses.

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