U.S. stocks rise on hope of debt ceiling deal and AI optimism

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27th May 2023 – (New York) U.S. stocks finished higher on Friday as investors grew optimistic that a potential deal to raise the U.S. debt ceiling was taking shape. The Dow Jones Industrial Average rose 1%, the S&P 500 added 1.3%, and the Nasdaq Composite Index increased by 2.19%.

Tech and consumer discretionary sectors led the gainers, rising by 2.68% and 2.38% respectively, while energy and health led the laggards by losing 0.37% and 0.17% respectively.

Investors were also bullish on the broader use of technology, particularly Artificial Intelligence (AI), which led another day of gains. Meanwhile, congressional leaders and U.S. President Joe Biden were in regular communication throughout Friday, zeroing in on a deal that would increase the U.S. debt limit for two years.

Investors are also closely monitoring new data suggesting that inflation rose more than expected in April. Some analysts are predicting that the Federal Reserve may raise interest rates again at the next monetary policy meeting to quell high inflation. The U.S. personal consumption expenditures (PCE) price index rose 4.4% for the 12 months ending April, up from a 4.2% increase in March, while the closely watched core PCE index, which excludes food and energy, edged higher to 4.7% year over year in April from a rate of 4.6% in March.

Federal Reserve Bank of Cleveland President Loretta Mester said she wouldn’t rule out hiking interest rates again in June, stating that “the data that came in this morning suggests we have more work to do.”

Despite the positive sentiment, some analysts caution that negotiations over the debt ceiling could still fall apart and that a potential U.S. default is a growing risk. Investors will continue to monitor developments on this front and the potential impact on the markets.

Overall, the markets remain cautiously optimistic, with hopes for a debt ceiling deal and continued advances in technology and AI, but also with concerns over rising inflation and potential interest rate hikes from the Federal Reserve.