May 23 (Reuters) – Wall Street stocks closed sharply lower on Tuesday and short-term Treasury yields shot up as investor jitters mounted over a lack of progress in US debt limit talks.
Representatives for US President Joe Biden and congressional Republicans ended a new round of debt ceiling talks on Tuesday, as the deadline approached to raise the government’s $31.4 trillion borrowing limit or reduce the risk of default.
Concerns about the debt limit pushed one-month Treasury yields to record highs of 5.888%.
Investors are also awaiting the minutes of the May 2-3 Federal Reserve meeting, scheduled for Wednesday, to assess the central bank’s next likely move on interest rates.
Regional Fed presidents James Bullard and Neel Kashkari indicated Monday that the U.S. central bank may need to continue raising rates if inflation remains high.
Michael Wilson, Morgan Stanley’s equity strategist, said a default on US debt is not priced into the market. Even if the two sides agree on a deal, it could still affect economic growth, he said.
“If they come to a deal on the debt ceiling, there will be some concessions on fiscal spending. It’s a problem for growth,” Wilson said. “Is that going to have an immediate impact, or will it be later? We think there’s a little bit of both. At the end of the day, there’s no positive trade-off.”
The S&P 500 benchmark index (.SPX) fell 1.12% to close at 4,145.58. The Nasdaq Composite (.IXIC) fell 1.26% to 12,560.25 points and the Dow Jones Industrial Average (.DJI) fell 0.69% to 33,055.51 points.
Volume on US exchanges was relatively small, with 10.3 billion shares traded, compared to an average of 10.6 billion shares in the previous 20 sessions.
Strategists polled by Reuters see the S&P 500 end the year at 4,150 points, slightly lower than Monday’s closing price of 4,192.63.
To help contain bigger losses, data from S&P Global showed that US business activity rose to a 13-month high in May, thanks to strong growth in the services sector.
The report was the latest sign that the economy maintained momentum at the start of the second quarter, despite mounting risks of a recession.
The April Personal Consumption Expenditure (PCE) Index from the US Department of Commerce, the Fed’s preferred inflation gauge, is expected on Friday.
Broadcom Inc (AVGO.O) advanced 1.2% after the chipmaker struck a billion-dollar deal with Apple Inc (AAPL.O) to use chips made in the United States. Apple shares fell 1.5%.
Zoom Video Communications (ZM.O) fell more than 8% after the video conferencing platform reported its lowest quarterly revenue growth.
Among retail earnings, Lowe’s Companies Inc (LOW.N) lowered its annual comparable sales forecast as demand for home improvement products declines. Lowe finished 1.7%.
Shares of regional lenders rose with gains from Monday, led by a 7.9% gain in PacWest Bancorp (PACW.O), with the regional KBW banking index <.KRX> increased by 0.9%.
Falling stocks outperformed rising stocks within the S&P 500 (.AD.SPX) by a ratio of 3.5 to one.
The S&P 500 recorded three new highs and one new low; the Nasdaq registered 90 new highs and 70 new lows.
Reporting by Shreyashi Sanyal in Bengaluru Edited by Vinay Dwivedi