Data last week showed a bigger-than-expected drop in U.S. consumer sentiment, while comments by Federal Reserve officials added to uncertainty over whether the central bank will pause interest rate hikes in June. Earlier this month the Fed indicated it may pause further rate hikes as it assesses the impact of its past tightening, as well as the effect of recent bank sector stress on lending and credit.

The Commerce Department reported retail sales rose 0.4% in April, short of the estimate for an increase of 0.8%, which points to a softer consumer spending. However, core retail sales rebounded, a figure excluding automobiles, gasoline, building materials and food services.

Following a string of aggressive rate hikes by the Federal Reserve to fight stubbornly high inflation has slowed the U.S. economy according to recent data. That slowing has focused attention on when the central bank will pause hiking or cut interest rates. While the market is currently pricing in a rate cut by the end of the year, especially if economic conditions weaken enough to tip the U.S. into a recession, recent comments from Fed officials suggested they are not ready to cut rates soon.

According to the FedWatch tool 58% of the futures traders expect the Federal Reserve to pause its interest rate hikes when it meets in June, as officials assess how well their actions to date have done to cool inflation. Although inflation has been decelerating in recent months the tight labour market might complicate the Fed’s decision.

The Labor Department data showed Thursday that initial unemployment claims fell to 242,000. The print was below expectations and lower than the prior week, in sign of labour-market resilience. Investors are wary that still-tight labour market data could complicate the Fed’s calculations.

According to the National Association of Realtors existing home sales fell 3.4% in April amid supply shortage and high prices. The reading was lower from the prior month and well above expectations. On an annual basis, existing home sales are down 23.2% in comparison to April 2022.

Source: Tradingview, S&P 500 Index Yearly Chart

Another factor in focus is the debt ceiling, which Congress must raise or suspend in the next couple of weeks for the U.S. to avoid the possibility of default. Equity markets rebounded on Wednesday on optimism about a debt ceiling deal in Washington. House Speaker Kevin McCarthy said on Thursday that he is optimistic congressional negotiators could reach a deal in time for a House vote next week.

Thursday’s price action breached its previous multiple resistance of 4,195 suggesting that the benchmark index could extend gains to the critical 4,325 level. The rising U.S. Treasury yields and U.S. dollar have not appeared to weigh on the index, however, could cap the short-term upside from here.

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