Wall Street’s best week since March stalls amid debt worries – News-Herald

By STAN CHOE (AP Business Writer)

NEW YORK (AP) Wall Street’s best week since March spiraled out of control Friday as concerns mounted over the U.S. government’s efforts to avoid a potentially catastrophic default on its debt.

The S&P 500 fell 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 index dropped 30.94, or 0.2%, to 12,657.90.

Despite Friday’s weakness, the S&P 500 still managed to emerge from a long, lethargic period where it failed to move up or down 1% for six consecutive weeks. It gained 1.6%, with much of the strength earlier in the week coming from rising hopes that Washington can avoid debt.

Democrats and Republicans face a deadline of June 1, the date by which the U.S. government could run out of money to pay its bills unless Congress allows it to borrow more. A default on its debt would likely spell a recession for the economy, which economists and investors alike widely expect to see a deal struck.

But some of the hopes faded Friday after a top negotiator for House Speaker Kevin McCarthy said it was time to break talks. That caused the S&P 500 to flip from modest afternoon gains to losses. It is the latest movie in the tug-of-war that has dominated Wall Street for weeks.

Every day, the market is back and forth about 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 think we’re headed for a recession or are in a recession, as I believe, and others don’t.

A default on US debt would almost certainly trigger a recession. But to offset those concerns on Friday, the hope was that the Federal Reserve will ease up on its rate hikes soon. That, on the other hand, could ease the pressure on an already slowing economy.

Traders took advantage of comments from Fed Chairman Jerome Powell Friday to indicate that the Fed could leave interest rates alone at its next meeting in June. That would be the first time this has happened in more than a year, after interest rates were raised at a breakneck pace in hopes of curbing inflation.

High interest rates have helped inflation cool from its peak last summer. But they do so by hurting the economy at large and driving down the prices of stocks, bonds and other investments. Industry and other sectors of the economy have already shown weakness under the weight of higher interest rates.

After Powell spoke, government bond yields gave up some of their gains from earlier in the day as traders reversed their bets on another rate hike by the Fed in June.

The yield on the 10-year Treasury rose from 3.65% at the end of Thursday to 3.69%. That yield helps determine rates for mortgages and other major loans.

Two-year Treasury yields, which move more based on expectations for Fed action, climbed to 4.33% before Powell spoke. It later fell back to 4.25% from 4.26% at the end of Thursday.

Just a day earlier, traders raised bets on a rate hike by the Fed in June. That was after Dallas Fed President Lorie Logan suggested another hike may be imminent unless more data emerge that points to a further cooling in 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.

Revenue for the last quarter fell short of forecasts, but it also announced a new $1 billion program to buy back its own shares. Investors like such purchases because they can lose a company’s earnings per share.

On the losing side was Foot Locker, which plummeted 27.2%. It lowered its financial forecast for the year as it had to cut prices to get shoppers to buy in what it calls a tough economic environment.

Another retailer, Ross Stores, fell 0.6% after giving a forecast profit margin for this full year that fell short of some analysts’ projections. That was despite sales and earnings for the last quarter beating Wall Street expectations.

There’s been a lot of focus on retailers this week, which also saw Home Depot, Target, and Walmart report mixed results. That’s because resilient US household spending has been one of the main pillars of keeping the economy from sliding into recession.

Deere also beat forecasts for revenue and earnings in the last quarter, but the stock fluctuated from an early gain to a 1.9% decline. Unlike many Wall Street companies, Deere is seeing its earnings and sales grow from a year ago level.

Most companies in the S&P 500 reported higher earnings than analysts had expected for the start of the year. But they are still on track to report a second straight quarter of earnings declines from year-ago levels.

Japan’s Nikkei 225 rose 0.8% to its highest closing price in about 33 years. Japanese consumer price index data for April showed a 3.4% increase over the previous year, indicating that inflationary pressures were easing.

Chinese equities struggled. Hong Kong’s Hang Seng was down 1.4% and the Shanghai Index was down 0.4%. European markets rose.

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Yuri Kageyama and Matt Ott, writers from AP Business, and Christopher Rugaber, writer from AP Economics, contributed.