Wall Street churns to a mixed finish
Wall Street churned to a mixed finish Tuesday as a long list of worries looms, even if the most pressing crisis seems to be calming as Washington moves to avoid a default on its debt.
The Standard & Poor’s 500 edged up by 0.07 points, or less than 0.1%, to 4,205.52, hovering close to its highest level since August. The Dow Jones industrial average slipped 50.56 points, or 0.2%, to 33,042.78. The Nasdaq composite, meanwhile, led the market with a 0.3% gain as excitement keeps building about artificial intelligence. It rose 41.74 points to 13,017.43.
Tuesday marked the U.S. stock market’s first trading since President Biden and House Speaker Kevin McCarthy (R-Bakersfield) struck a deal to allow the U.S. government to borrow more money, a move that would enable it to avoid a default on its debt. They now must persuade Congress to approve it before the U.S. government runs out of cash to pay its bills, something that could happen as soon as June 5.
Some on Capitol Hill are unhappy about the deal’s details, and Biden and McCarthy are both working to gather votes. The wide expectation on Wall Street has been that Washington would reach a deal in the 11th hour because failure would probably mean tremendous pain for the economy and financial markets.
Even if there is no default, though, all the partisan brinkmanship could further erode faith and trust in the U.S. government. That could trigger another downgrade to its credit rating, following Standard & Poor’s rating cut in 2011.
Beyond the drama around the nation’s debt limit, financial markets have also been battling against a long list of concerns. The economy is slowing, inflation is still high and interest rates may be heading even higher, which would further tighten the reins on the economy and financial markets.
The rich won’t be hurt a bit by the Biden/McCarthy debt ceiling deal. It’s the poor who will pay. That was Republicans’ priority all along.
The worries are also global, with China’s economic recovery weaker than expected after the relaxation of anti-COVID restrictions.
U.S. stocks have rallied recently despite such worries after companies reported drops in profit for the start of the year that weren’t as bad as feared. And at the center of it has been Wall Street’s growing frenzy over AI.
Nvidia, whose chips are helping to power the tech world’s newest rush, rose an additional 3% after already more than doubling this year. Last week, it gave a monster forecast for upcoming revenue as it described customers of all kinds racing to apply AI to their businesses.
Nvidia’s surge has its total value nearing $1 trillion, a threshold passed by only the biggest stocks, including Apple. The huge gains are raising worries about another possible bubble. But evangelists say AI is the next big revolution to reshape the global economy.
Increasingly concerned about powerful AI systems, regulators say they’re directing resources toward identifying negative effects on consumers and workers.
Also helping to prop up Wall Street in recent weeks are data showing a resilient job market and other signals that the slowing economy may avoid a recession.
Some market watchers express caution.
“I’m sure there’s going to be a lot of money to be made in AI for a select group of companies, but that’s not enough to lift the entire economy out of a potential recession here,” said Rich Weiss, senior vice president at American Century Investments.
He acknowledged the job market has remained much better than he expected under the weight of higher interest rates, but he pointed to weakness in the housing market, manufacturing, corporate profits and other areas that often fall before the labor market ahead of a recession.
“The job market will follow the others, not the other way around,” Weiss said.
He also highlighted how concentrated the stock market’s gains have been this year among a handful of companies, many benefiting from AI. The majority of stocks in the S&P 500 are down for the year so far, partially on worries about the economy.
A report Tuesday morning showed that confidence among consumers is falling and remains well below where it was before the pandemic, though it remains stronger than economists expected. That’s key because continued spending by households has been one of the main factors causing investors to push out their predictions for an upcoming recession by three to six more months.
On the losing end of Wall Street were companies in the energy industry. Exxon Mobil fell 0.9% as the price of crude oil fell even more steeply amid worries about demand for fuel.
In the bond market, Treasury yields eased as fears about a possible default diminish.
The yield on the 10-year Treasury fell to 3.69% from 3.81% late Friday. It helps set rates for mortgages and other loans.
The yield on the two-year Treasury slipped to 4.46% from 4.57%. It more closely tracks expectations for what the Federal Reserve will do.
Traders are largely bracing for another hike in short-term interest rates from the Fed at its next meeting in two weeks, but the hope is that may be the final one after more than a year of rapid increases.
Higher interest rates help to slow inflation, but they do that by dragging on the entire economy, raising the risk of a recession and hurting prices for investments.
In markets abroad, European stocks were lower while indexes were mostly higher in Asia.
AP writers Yuri Kageyama and Matt Ott contributed to this report.
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