Tech extends rally as traders await debt deal

The frenzy surrounding artificial intelligence led another day of gains in the stock market as traders were also growing more confident a deal on the U.S. debt limit would be reached.

The S&P 500 rose 1.3% and the tech-heavy Nasdaq 100 added 2.6% as Marvell Technology said revenue in 2024 would “at least double” from a year ago on a surge in demand from AI, echoing sentiments from Nvidia earlier in the week. Shares of the chipmaker surged 32%.

The gains came as U.S. negotiators also appeared to be moving closer to an agreement to raise the U.S. debt limit and cap federal spending for two years.

A U.S. default could result in catastrophic damage, putting markets on edge.

However, House Speaker Kevin McCarthy said he believed progress had been made last night.

“Today we are getting a boost from debt ceiling headlines plus continued AI enthusiasm,” said John Kolovos, chief technical strategist at Macro Risk Advisors.

Investors were demanding less of a premium to hold U.S. Treasury bills seen most at risk of nonpayment if a deal wasn’t reached in time.

Securities expiring in early June – when Treasury Secretary Janet Yellen warned the government could run out of money – are all yielding less than 6% on Friday.

Meanwhile, the rate-sensitive two-year Treasury drifted as traders considered how a debt deal could play into the Federal Reserve’s path forward on interest rates.

The two-year yield hovered around 4.56% after a report on consumer spending showed the Fed still has more work to do to bring inflation back toward its target.

The personal consumption expenditures price index, one of the Fed’s preferred inflation gauges, rose by a faster-than-expected 0.4% in April.

“While we believe that there are good chances for a [debt] resolution before the FOMC meeting, any deal would almost certainly include some fiscal tightening, which should reduce the need for the Fed to hike rates,” said Brian Rose, senior U.S. economist at UBS Chief Investment Office.

“Going past the debt ceiling deadline would have serious consequences, and in that event there is almost no chance that the Fed would hike.”

In other corporate news, retailer Gap rallied 12% after reporting better-than-expected results.

Workday jumped 10% after results at the application software company pointed to stable demand.

And Ford rose 6.2% after striking a deal with Tesla to give its electric-vehicle customers access to the Tesla Supercharger network.

Elsewhere in Europe, the Stoxx 600 rose with chipmakers including ASML advancing for a second day.

Glencore gained after a report that its Viterra unit is in talks to merge with Bunge, one of the world’s largest crop merchants.

And in Asia, the benchmark CSI 300 index ended little changed, bringing the week’s losses to 2.4% amid growth concerns.