Stock market today: Wall Street slips as debt worries escalate

NEW YORK (AP) Stocks fell on Tuesday as the U.S. government edged closer to the brink of a potentially disastrous default on its debt.

The S&P 500 fell 1.1% after House Speaker Kevin McCarthy said, “We hadn’t come to an agreement yet to prevent the US government from running out of cash. It followed a Monday night meeting that he and President Joe Biden called productive but ultimately ended without a deal.

The Dow Jones Industrial Average lost 231 points, or 0.7%, while the Nasdaq composite lost 1.3%.

So far, the stock market has remained largely resilient even as Washington nears the June 1 deadline. That’s when the US government may not be able to pay its bills unless Congress allows it to borrow more. Economists and investors generally believe that a default would send shock waves through the global economy and financial markets.

The speculation on Wall Street has been that Congress will strike a deal at the 11th hour, as it has done many times before, because the alternative simply seems too dire for anyone to allow.

But one worry on Wall Street is that Washington doesn’t feel the urgency to act until financial markets shake hard enough to ignite a fire under politicians from both parties.

There’s a theory that neither of them looks like a hero until there’s this fear of cascading prices, said Keith Buchanan, senior portfolio manager at Globalt Investments. Part or both may look like white knights.

Parts of Wall Street were more concerned, particularly in the bond market where some Treasuries are expected to be redeemed around the date of a possible default. The prices of these bonds fell, in part due to concerns about the debt ceiling, which in turn pushed their yields higher.

But the stock market did not show as much concern. Buchanan said that may be because it’s unclear how prices in different markets would react to something that has never happened before and was once unthinkable.

He said he hasn’t made any moves to the investments he oversees due to default fears, at least not yet.

I think everyone takes it moment by moment, he said. Every minute that passes increases the urgency.

Concerns about the debt ceiling come on top of fears that the slowing economy could head into a recession, even without default. A preliminary report released Tuesday morning suggests the economy remains divided, with growth in travel and other service businesses strengthening while manufacturing remains under pressure.

US economic expansion accelerated in May, but a growing dichotomy is evident,” said Chris Williamson, chief economist at S&P Global Market Intelligence.

On Wall Street, AutoZone fell 6% after reporting weaker revenue growth for the last quarter than analysts expected. This indicated a slower-than-expected March.

Electric vehicle maker Lordstown Motors fell 5.3% to 28 cents after announcing a reverse stock split to boost its share price. Investors will receive one new share for every 15 they currently hold. Its stock has remained below $1 since mid-March.

On the winning side of Wall Street was Lowes, which rose 1.7% after reporting higher earnings and revenue for the last quarter than analysts expected. But it also cut its financial forecast for the year in part because of weaker-than-expected sales to DIY customers.

Retailers are among the latest companies to report results for the first three months of the year, and most companies beat expectations. Retailers in particular have been getting a lot of attention, as resilient spending by US households has been one of the main positives that helped the economy out of the recession.

Manufacturing and other sectors of the economy are struggling under the weight of much higher interest rates designed to keep inflation in check.

High interest rates have also meant strain for the US banking system. Three high-profile bank failures since March have rattled the system, and Wall Street is on the hunt for the next bank that could suffer a debilitating drop in customer confidence.

Some of the most scrutiny focused on PacWest Bancorp, but it rallied for a second day after news broke that it was selling a $2.6 billion portfolio of home construction loans. It rose another 7.9% after jumping 19.5% on Monday.

Other banks also strengthened, including a 4.6% jump for Zions Bancorp.

In total, the S&P 500 lost 47.05 points to 4,145.58. The Dow fell from 231.07 to 33,055.51 and the Nasdaq lost 160.53 to 12,560.25.

In the bond market, the 10-year Treasury yield fell to 3.70% from 3.72% on Monday evening. It helps set the rates for mortgages and other large loans.

The two-year yield, which moves more in line with Fed expectations, rose slightly to 4.34% from 4.32%.

Most foreign stock exchanges fell, including a 1.3% drop for Paris and a 1.5% drop for Shanghai.

AP Business Writers Matt Ott and Joe McDonald contributed.