Wall Street’s best week since March stalls amid debt worries
Wall Street‘s best week since March ran out of steam Friday as worries rose about the U.S. government’s efforts to avoid a potentially disastrous default on its debt.
The Standard & Poor’s 500 slipped 6.07 points, or 0.1%, to 4,191.98. The Dow Jones industrial average fell 109.28, or 0.3%, to 33,426.63, while the Nasdaq composite gave up 30.94, or 0.2%, to 12,657.90.
Despite its weak Friday, the S&P 500 still managed to break out of a long, listless stretch in which it failed to move by 1%, up or down, for six straight weeks. It gained 1.6%, with much of the strength earlier in the week coming on rising hopes that Washington can avoid a debt default.
Democrats and Republicans are facing down a June 1 deadline, which is when the U.S. government could run out of cash to pay its bills, unless Congress allows it to borrow more. A default on its debt would likely mean a recession for the economy, which has economists and investors widely expecting a deal to be made.
But some of the hope ebbed Friday after a top negotiator for House Speaker Kevin McCarthy (R-Bakersfield) said it’s time to “ press pause” on talks. That helped cause the S&P 500 to flip from modest midday gains to losses. It’s the latest flick in the tug of war that’s dominated Wall Street for weeks.
Debt limit talks resumed at the U.S. Capitol late Friday.
Some legal scholars say a clause in the 14th Amendment could mean the president can bypass Congress and clear the way for more debt to be issued. Others are dubious.
“Every single day, the market is just a back-and-forth on recession or no recession,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management. “That’s why we’ve been in this range-bound area. Some people believe we are heading for or are in a recession, like I believe, and some don’t.”
A default on the U.S. debt would almost surely cause a recession. But helping to counterbalance those worries on Friday were hopes that the Federal Reserve may soon take it easier on its interest rate hikes. That, in contrast, could ease the pressure on an already slowing economy.
Traders took comments made by Fed Chair Jerome H. Powell on Friday to indicate the central bank may leave interest rates alone at its next meeting in June. That would be the first time it’s done so in more than a year after raising rates at a furious pace in hopes of driving down inflation.
High rates have helped inflation cool from its peak last summer. But they do that by hurting the economy broadly and dragging down prices of stocks, bonds and other investments. Manufacturing and other areas of the economy have already shown weakness under the weight of higher interest rates.
After Powell spoke, Treasury yields gave up some of their gains from earlier in the day as traders ratcheted back bets for another Fed rate hike in June.
The yield on the 10-year Treasury rose to 3.69% from 3.65% late Thursday. It helps set rates for mortgages and other important loans.
For President Biden, good jobs report raises hopes the U.S. economy can stick a soft landing — possibly avoiding a recession as the 2024 election nears.
The two-year Treasury yield, which moves more on expectations for Fed action, climbed as high as 4.33% before Powell began speaking. It later fell back to 4.25%, down from 4.26%, late Thursday.
Just a day earlier, traders were upping bets for a Fed hike in June. That was after Dallas Fed President Lorie Logan suggested another increase may be on the way unless more data arrive to suggest further cooling of inflation, which remains well above the Fed’s target.
On Wall Street, DXC Technology rose 2.5% for one of the bigger gains in the S&P 500 after offering a mixed earnings report.
Its revenue for the latest quarter fell shy of forecasts, but it also announced a new $1-billion program to buy back its own stock. Investors tend to like such purchases because they can goose a company’s earnings per share.
On the losing side was Foot Locker, which tumbled 27.2%. It lowered its financial forecast for the year because it’s having to mark down prices to get shoppers to buy amid what it calls a tough economic environment.
Tech layoffs, bank failures and a potential U.S. recession could throw a wrench in the plans of 2023 graduates — in the same year federal student loan payments are expected to resume and accrue interest.
Another retailer, Ross Stores, fell 0.6% after giving a forecasted range for earnings this full year that fell short of some analysts’ projections. That was despite its sales and revenue for the latest quarter topping Wall Street’s expectations.
Much scrutiny has been on retailers this week, which also saw Home Depot, Target and Walmart report mixed results. That’s because resilient spending by U.S. households has been one of the main pillars keeping the economy from falling into a recession.
Deere topped forecasts for revenue and earnings in the latest quarter, but its stock swung from an early gain to a drop of 1.9%. Unlike many companies on Wall Street, Deere is seeing both metrics grow from year-ago levels.
The majority of companies in the S&P 500 have been reporting stronger earnings for the start of the year than analysts expected. But they’re still on track to report a second straight quarter of profit declines from year-ago levels.
Japan’s Nikkei 225 rose 0.8% to its highest close in about 33 years. Data on Japan’s consumer price index for April showed a rise of 3.4% from the previous year, indicating inflationary pressures were subsiding.
Chinese stocks struggled. Hong Kong’s Hang Seng fell 1.4% and Shanghai’s index slipped 0.4%. European markets rose.
AP writers Yuri Kageyama and Matt Ott contributed to this report.
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