HomeFinanceU.S. stocks pull back as debt ceiling fears mount

U.S. stocks pull back as debt ceiling fears mount

U.S. stocks slid Tuesday, erasing Monday’s gains, as worries about the debt ceiling negotiations in Washington outweighed data suggesting economic growth remains resilient, while yields on Treasury bills maturing between early and mid-June climb toward 6% on Tuesday.

How stocks are trading

  • The S&P 500

    dropped 44 points, or 1.1%, to 4,148

  • The Dow Jones Industrial Average

    lost 211 points, or 0.6%, to 33,075

  • The Nasdaq Composite

    dropped 147 points, or 1.2%, to 12,573

On Monday, the Dow Jones Industrial Average fell 140 points, or 0.42%, to 33287, the S&P 500 increased 1 points, or 0.02%, to 4193, and the Nasdaq Composite gained 63 points, or 0.5%, to 12721.

What’s driving markets

Stocks fell Tuesday as House Speaker Kevin McCarthy reportedly told Republicans that debt-limit talks still have some distance to go, according to a report by Bloomberg Tax.

President Joe Biden and House Speaker Kevin McCarthy on Monday failed to reach a deal on raising the debt ceiling after the market closed, while they struck a somewhat upbeat tone. More talks are planned.

On Monday, Treasury Secretary Janet Yellen reiterated that the U.S. won’t be able to pay all its bills by early June, and as soon as June 1, if Congress doesn’t raise the debt ceiling. One think tank’s projections Tuesday said the “X-Date” could arrive on June 2.

“The debt ceiling seems to be the only market driver,” said Stephen Innes, managing partner at SPI Asset Management.

Stresses have been building in government bond markets, pushing up short-term yields and the price of debt insurance, as traders express concern about the impact on markets should Yellen’s feared scenario come to pass.

The yield on the six-month Treasury bill

went up Tuesday to as high as 5.41%, marking the highest level since 2000. Yields on Treasury bills maturing between early and mid-June rose toward 6% on Tuesday.

Treasury traders are pricing a potential default of U.S. government debt, hawkish comments from Federal Reserve officials, and a possible recession, noted noted Rajeev Sharma, managing director of fixed income investments at Key Private Bank.

At the same time, the economy keeps growing as inflation slowly cools though recession fears are still prevalent.

The S&P Flash U.S. services-sector index hit a 13-month high, up 55.1 in May from 53.6 in April. The S&P U.S. manufacturing sector index, meanwhile, slipped to 51 from 52.4, though it was still higher than Wall Street forecasters predicted.

New home sales climbed 4.1%, according to the Commerce Department. The 683,000 annual rate of sales in April beat expectations for 669,000.

“The market is bending but it hasn’t broke. That’s good to the updside,” said Ken Mahoney, president and CEO of Mahoney Asset Management. “If you are a bear, you’ve got be very frustrated.”

Mahoney thinks a debt ceiling deal will ultimately come in Congress and the Federal Reserve might pause its interest rate hikes at the upcoming June meeting. By and large, the first quarter earnings reporting season was rosier than some expected — and then there’s the real opportunities that lay ahead for companies using AI, he noted.

Read also: 20 AI stocks expected to post the highest compound annual sales growth through 2025

Companies in focus

— Jamie Chisholm contributed to this article.

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